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Understanding Tax Return Obligations in the UK

June 11, 2024

If you meet the criteria set by HMRC for self-assessment, it’s crucial to understand your tax return obligations to avoid penalties and interest.

Legal Obligations

There are two main legal obligations related to self-assessment:
1. Notify HMRC of Tax Liability: If you owe tax for a year, you need to inform HMRC.
2. File a Tax Return Upon Request: If HMRC requests a tax return, you are legally obliged to file it.

Most UK residents who have all their income taxed under PAYE, have no chargeable gains, and are not liable for specific tax charges (e.g., high-income child benefit charge) do not need to notify HMRC of any liability. However, if you owe tax and HMRC has not requested a tax return, you must inform them. This situation often arises if you begin self-employment within a tax year or let out a property.

HMRC’s Self-Assessment Criteria

HMRC outlines specific criteria for taxpayers required to complete a self-assessment tax return. Common scenarios include:

  • Self-employment (excluding income within the £1,000 trading allowance)
  • Partnership in a business
  • Company directors with untaxed income
  • Property income (unless covered by rent-a-room relief or the £1,000 property allowance)
  • Claiming tax relief on employment expenses over £2,500 annually
  • Untaxed income beyond personal allowances
  • Capital gains tax liabilities
  • Foreign income on which UK tax is due (with some exclusions)
  • Non-residents with taxable UK income
  • Total taxable income exceeding £150,000
  • Receiving child benefit with adjusted net income over £60,000
  • Liability to certain other tax charges, such as excess gift aid or pension contributions

If you meet these criteria and HMRC hasn’t asked you to file a tax return, you should register for self-assessment yourself. Failure to notify HMRC could result in penalties. If HMRC requests a tax return, you must comply even if your situation seems to fall outside the criteria.

Selling Property

UK residents who sell a UK residential property with capital gains tax due must notify HMRC and pay the tax within 60 days via a separate return. Non-residents must follow similar rules for any UK property sale, regardless of tax due.

No Tax to Pay

If you fall within the self-assessment criteria but have no tax liability, registration may still be beneficial. For instance, individuals might register to:

  • Claim capital or trading losses.
  • Provide income evidence for loans or finance applications.
  • Ensure visibility of tax affairs to avoid future disputes with HMRC.

When HMRC Requests a Tax Return

If HMRC requests a tax return, you are required to complete it, even if you have no tax or National Insurance liability. Getting the notice to file a tax return withdrawn is generally difficult if you meet the self-assessment criteria.

For more advice, speak to one of our experts here.

Gary Olding

Gary is the National Head of Tax and oversees our Tax Compliance and Medical Tax Teams. When not dealing with clients he is supervising operations, troubleshooting, and optimising workflows.

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