In this week’s episode of ‘l Hate Numbers’ I am looking at Personal tax returns. More specifically the personal tax returns you need to complete in the United Kingdom.

Background

Every year the tax office, shorthand HMRC want individual taxpayers to tell them what's been going. The principle is called self-assessment, where you tell HMRC what your income and gains, and calculate the tax owing or to be repaid. As a heads up, HMRC accepting your tax return doesn’t mean they agree with it.

Tax Years

In the United Kingdom the tax year for individuals is between the 6th of April and the following 5th of April, and we've got the Catholic church and Julius Caesar to blame for that.  Find out why, listen

What goes into your tax return?

Your tax return will include details of your income. Typically, salaries, income from property, self-employment income and pensions. It will also include details of capital transactions. So, if you’ve sold an investment property or the family antiques.

Dates

One date to understand is the income tax year. This doesn’t run on calendar years, but between 6th April and the following 5th April. Julius Caesar and the Catholic church are part of the reason, listen to find out more

Deadlines, payment dates, and getting an interest free loan via PAYE make an appearance in this episode.

Who needs to complete a personal tax return?

There are an estimated 12 million personal tax returns that need to be completed for 2019-20, that’s an estimated 30% of the UK adult population.

Listen to the podcast to see if you’re one of the 30%

Paying the tax

You’ve finished your tax return, and instead of a refund you see that you have money to pay. When should you do if you don’t have it?

I share my tips, spoiler alert, it involves ostriches and duvets.

Well, folks, that's a wrap. I hope you got some value from this podcast. I'd love it. If you could subscribe, tell your friends, your associates, your colleagues, about what a wonderful show this says until next week, have a great week.

What Next

Grab a coffee, make yourself comfortable, sit back and listen.

I love doing this podcast and sharing my love of Numbers with you. Contact us if you want to find out more.

In This Episode

• Understanding who must complete a personal tax return
• Knowing what goes into a personal tax return
• Finding out the key dates in the tax return calendar
• What to do if you haven’t got the money to pay your tax bill
• Developing your own Numbers confidence and decisions
• Take more control of your numbers to help make you money, survive and thrive

Links

https://podcasts.apple.com/podcast/proactiveresolutionss-podcast/id1500471288

https://play.google.com/music/m/I3pvpztpjvjw6yrw2kctmtyckam?t=I_Hate_Numbers

https://open.spotify.com/show/5lKjqgbYaxnIAoTeK0zins

https://www.stitcher.com/podcast/proactiveresolutionss-podcast

https://tunein.com/podcasts/Business–Economics-Podcasts/I-Hate-Numbers-p1298505/

You are listening to the I Hate Numbers Podcast with Mahmood Reza. The I Hate Numbers podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

Nearly 12 million people, approximately 30% of the UK adult population will need to file a personal tax return. Hi, folks. My name is Mahmood. I'm the host of the weekly podcast I Hate Numbers, the show that's designed to get you a bit closer to your numbers, so you can make money, survive, and thrive.

Today's topic is about personal tax returns, more specifically the personal tax returns you need to complete in the United Kingdom. A bit of a context, bit of a background for you first before we dive deeper into the topic. In the UK tax system, what happens is on a yearly basis, the tax office will ask individual taxpayers to say, please tell us what's been going on between a certain timeframe.

Number two, tell us how much tax that you owe. And thirdly, once you've submitted that return, they will effectively put that to one side, collect the taxes due, and they have then a window in which to actually look further at the return if they feel it's necessary. The principle is called self-assessment, which says, you tell us what's going on,

you tell us how much tax you have to pay, us merely accepting the return doesn't actually mean we agree with that. So therefore, it's really important to make sure we get it right first time and we don't have to deal with any inquiries that might follow. A bit more background before we dive into the four areas I want to cover on today's podcast.

Now, we mentioned years in all tax systems here, typically, all tax authorities will want to have a frame of reference by which they expect people to tell them about what's going on. In the United Kingdom, we have a tax year for individuals that's between the 6th of April and the following 5th of April, and we've got the Catholic Church and Julius Caesar to blame for that.

Number two, the personal tax return that we complete will show what's called income, typically salaries, wages, income from property, self-employment, maybe pensions that you have, anything that's classified as income will be going into there, and if you've sold anything that's called capital, e.g. you've sold some shares, you've sold a second property, works of art, that will also, the details of that will also go into your personal tax return.

In the United Kingdom, we have a tax year that runs between the 6th of April and the 5th of April, and the focus on today's podcast is the tax year 2019/20. Sounds peculiar, doesn't it? So, in terms of date-wise, it's the 6th of April, 2019, up to and including 5th of April, 2020. Now, I mentioned Julius Caesar and the Catholic Church. Back in the 16th century Europe adopted

the solar calendar or the Gregorian calendar, which was based on the Earth’s rotation around the sun. Prior to that, we adopted the Julian calendar. Now, you might think, what's that got to do with anything? Well, what happened was, by the time England and the UK adopted the calendar about 170 years after the rest of Europe,

there was a gap of about 10-11 days and to do this, tax office didn't want to lose out on any revenue, they messed around with it and they then artificially moved it to the 6th of April, endorsed in 1900 to make sure they captured leap years as well. Most tax authorities around the world typically have a tax year that runs between the first of the month, on 1st of January up to the 31st

of December. Okay. That's the history dealt with. What are we going to be talking about in today's podcast? We're going to be looking at four main areas. Who needs to actually bother completing a tax return? I'm going to walk you through the return. What's in there? What's the main information that we need to collate?

We're going to look at dates, the key dates, and if we don't observe these key dates, typically there will be a financial consequence in terms of perhaps penalties or we miss out on opportunity. And lastly, we're going to look at the payments. When it comes to it, and you've got money that you've got to pay over,

when should you pay over and what do you do if you haven't quite got the money? And bear in mind, by the way, that we may have a situation that when we submit our personal tax return, there may be tax coming back. So, that's not always, you know, paying out. Let me deal with the first issue. Who needs to bother completing a tax return?

Typically, the main situations where you have to complete a tax return will be if you are self-employed, earning over a thousand pounds. Self-employed in this context means a sole trader, a freelancer, a solepreneur, whatever term connects with you the most, but it's not a company. We're talking about individuals who are self-employed.

If you are classified as a higher-rate paid employee i.e. you have income over 50,000 pounds and, careful of the and, and you have income that hasn't been taxed, typically, you might have rental property, you may have pensions, you may have other jobs that you've got going on, directorships, et cetera. If you are a company director and you receive financial benefits beyond your salary and beyond any benefits in kind, then you have to also complete a tax return.

If you or your partner have individual income over 50k, and you also receive child benefit, you have to complete a tax return. If you have losses, so you have a rental property that has been making losses, or you've got a self-employed business that's been making losses, then you need to file a tax return, to reinforce and to make the claim for those losses, otherwise you lose them.

All losses are what they call time barred. If you don't claim them within a certain time period, you won't be able to get the benefit of using those losses. If you want to claim tax-free childcare, you've got to complete a tax return. If you've made profits, as we said, from capital transactions, bizarre term that it may be i.e. selling shares or second homes or works of art, you have to complete

a tax return. Now, if you're listening to this and thinking, well, I don't need to complete a tax return because I've got a letter from the tax office saying I don't need to complete one. Let me read between the lines for you. If your situation in a particular year has been such that you've got relatively low income and you've not paid any tax, then

HMRC’s computers will automatically generate a letter saying you do not need to complete a tax return. However, this is what's called self-assessment. If your circumstances change and it ticks the boxes of one of those areas that I identified earlier, you will still need to complete a tax return. It's the responsibility is on your shoulders.

It doesn't mean you are exempted completely. Next thing I'd like to do is to walk us through the tax return. What's in there? And if we know what's in there, that makes it much easier to collate, to gather all the information that's required to complete the form. Completing the form is probably relatively straightforward; however, it's making sure we put the content in the right areas.

Form filling doesn't necessarily equate to 100% correct, so care is needed when that form is ultimately filled in. There are two sections to the tax return. There's what's called a core element, a core bit to the return, which applies to all individuals, and then added to that are what are called supplementary pages.

And those supplementary pages reflect the sources and types of income you have and if you have any capital gains. So, let's walk through the core return first of all. It will include your unique tax reference, which is a very posh word for your 10-digit personal tax code. If you haven't yet registered, if you have lost your code, absolutely vital that you get one,

otherwise the return will be rejected. In addition, in the core return, you have to provide your personal details, your name, your date of birth, details of any savings income that you may have, pension payments, gift aid claims. Gift aid, by the way, is where an individual makes a donation to a charity. The charity can claim the tax back on that, and my advice would be make sure you put the gift day details on your tax return.

If you are a higher-rate taxpayer, you will actually get a reduction in your tax bill. The second part of the tax return is what I refer to as supplementary pages. Typically, this is providing details that's not within the core return and will give information to the tax office about your other income. Typically, income from employment, which will include details, your salary and your wages, the tax taken off, and any benefits you've received from your employer,

things such as medical insurance, company cars, company yachts, company planes. There are also supplementary pages for self-employment, so that's where you detail the income and outgoings in tax terms for your self-employment. And remember, self-employment does not refer to companies. It's if you operate as a sole trader, a freelancer, a subcontractor.

If you happen to be in business partnership, either as what's called an LLP or an unincorporated partnership, that information has to also go onto one of the supplementary pages. The four other pages are if you have income from property, renting out, then there is a section for that. If you've got income or gains from overseas, whether it's interest, pensions, earnings, there's a section for that.

And the last two to think about is a section on capital gains where you'll collate and record information on your transactions, on selling shares, property, and land. And lastly, if you are a non-UK resident or a dual resident, there is a section you need to complete in that respect. So, let's recap where we are

so far. We've talked about income tax year. We're focusing on the year, what's called 2019/20, which covers the dates 6th of April, 2019 to the 5th of April, 2020. We've mentioned Julius Caesar, and we've mentioned the Catholic church. We mentioned who has to complete a tax return. So, for example, higher-rate taxpayers with untaxed income, self-employed

who earn over a thousand pounds, people who want to claim tax-free child allowances, company directors, if you wish to claim losses, which is to be recommended. Let me talk key dates. If you need to complete a tax return, then you need to register with a tax office by the 5th of October in your second tax year if you're self-employed. If you've got income that arises, you've got until the 5th of October, the following year to tell HMRC.

And by telling them, that means you need to register. You can still complete tax returns on paper, but if you do want to go down that route, you prefer paper or you've got a religious exemption, then they've got to be submitted by midnight, the 31st of October, 2020. The deadline for filing your tax returns online

is the 31st of January, 2021. If you don't submit on time, by the way, you'll get an automatic penalty of at least 100 pounds. If you delay much longer, the fines will go up. If you have a source of PAYE income and the tax that you owe is less than 3,000 pounds, and you would prefer to have it collected via your tax code, then you've got to submit your tax return by the 30th of December, 2020.

If you don't, you'll have to pay that amount in full. The 31st of January, 2021 is also a relevant date for the actual payment that may have to be made to the tax office. Apart from filing the return by midnight, 31st of January, 2021, you will have to pay any tax by that due date as well. And there may also be what is called a payment on account.

This is something that catches a lot of people unaware. And I'm just going to briefly run through with a couple of made up numbers about what the payment on account refers to. Let's assume I've completed my tax return. I've worked out that I owe the tax office 2,000 pounds. Now, I make sure that that 2,000 pounds is paid by the 31st of January, and because the amount I owe is more than a thousand pounds, I've also got to pay 50% of that money on top of the 2,000.

The payment on account is effectively an installment towards next year's tax bill. So, that means I've got to find 3,000 pounds. Now, it doesn't just stop there. On the 31st of July, 2021, I've got to pay my next installment, my next payment on account of 1,000 pounds. Now, circumstances such in life that if you think your income is likely to drop in the following year, then you can make a claim to reduce the payments on account.

The last thing I want to deal with is what happens if you're caught unaware and actually you owe money that you weren't expecting, it’s higher than you thought it would be, what do you actually do? Well, what I would strongly recommend is you avoid behaving like an ostrich. Do not stick your head in the sand.

Do not hide under the duvet. Critically, the first thing you must do is to make sure your tax return is sent in. Once your tax return is sent in, HMRC have got that as a record, and then you'll be speaking to a separate department called Debt Management, where you can discuss with them what's called a time-to-pay arrangement.

Those payments can be spread over a period of time. Interest will be due on those installments, but it's much cheaper than going for a bank overdraft or stressing and panicking. My advice to clients is if you've got a tax return that's completed early, you've got a window to know how much tax do you owe.

You may also be eligible for a refund as well, which is always a good thing. And the last thing I would share with everybody, in terms of tip is when you do invoice customers, if you're self-employed, for example, put the money away, put a proportion of that money, typically about 10% in a separate account, so you're saving for that tax bill ahead.

Well, folks, that's a wrap. I hope you got some value from this podcast. I'd love it if you could subscribe, tell your friends, your associates, your colleagues, about what a wonderful show this is. Until next week, have a great week. We hope you enjoyed this episode and appreciate you taking the time to listen to the show.

We hope you got some value. If you did, then we'd love it if you shared the episode. We look forward to you joining us next week for another I Hate Numbers episode.