Employees on PAYE can go through life blissfully unaware of the annual self assessment tax return, but a turn in their fortunes – becoming self-employed or acquiring a rental property or unearned income – can mean their employer no longer pays all their income tax and they have to start doing a tax return.
Importantly, HMRC will not get in touch to tell you that you have to start doing a self assessment tax return – you have to take the initiative. However, it does make it relatively easy for people to work out if they need to do a return by providing a questionnaire on gov.uk.
Allowances
Income tax is not paid on all income because of allowances.
The most important of these is the personal allowance. This has been stuck at £12,570 since the 2021–22 tax year and is not due to go up until April 2028. The freeze on the personal allowance – rather than it increasing in line with the Consumer Prices Index – is a relatively unobtrusive way of the Treasury increasing its revenues while not increasing tax rates. Economists refer to it as fiscal drag.
Marriage allowance
The marriage allowance allows spouses or civil partners with an income below the personal allowance to transfer £1,260 of their personal allowance to their partner. This knocks £252 a year off the higher earner’s tax bill.
Tax codes
There are other situations in which HMRC will adjust someone’s personal allowance up or down.
People may have a tax code greater than 1257L (the number denoting the standard £12,570 allowance and the ‘L’ that the taxpayer is on the standard rate) for reasons such as:
- Claiming the work from home allowance.
- Having to buy or maintain items for work, such as tools.
- Using their own car for work.
- Buying fuel for use in a company car.
The tax code number can be less than 1257L (meaning the personal allowance is lower) for reasons such as:
- Receiving work-related benefits such as a company car or private healthcare.
- Having additional income that has not yet been taxed.
- Having underpaid tax in a previous tax year.
What are HMRC’s criteria for doing a tax return?
There is a broad range of situations that mean people have to register for self assessment. They include if:
- You are self-employed with income before expenses of more than £1,000 in the tax year.
- You are a partner in a business.
- You have property income.
- You want to claim tax relief on employment expenses above £2,500 in a year.
- You have capital gains tax to pay that hasn’t been paid already in the tax year.
- You are a minister of religion.
- You receive income from a trust or the estate of someone who has died.
- You receive foreign income, except for dividend income below the UK dividend allowance.
- You are non-UK resident and have taxable income in the UK.
- You have savings or dividend income of £10,000 or more (except in an ISA).
- You have any other untaxed income of £2,500 or more.
- You have total taxable income of £150,000 or more before tax.
- You have to pay the high income child benefit charge.
It is important to note that HMRC will expect to see a tax return for the current tax year from people outside its criteria if they did a tax return the previous year. However, you can notify HMRC that self assessment no longer applies to you and ask it to cancel the requirement. All the usual rules, regulations, and penalties apply even if no tax is owing.
Pension income is taxable in the same way as any other sort of income. For the 2025–26 tax year the state pension is £11,973 a year, only £597 less than the personal allowance.
There is growing pressure on the government to raise the personal allowance for pensioners as the state pension is rising every year under the triple lock while the personal allowance, as noted above, has been fixed until 2028. This means fairly soon the state pension will be more than the personal allowance and pensioners will have to pay income tax on their pensions.
Campaigners point to the illogicality of the government paying a benefit then retrieving some of it in tax, and to the injustice of pensioners on low incomes having to pay tax on that income after a lifetime of contributing to the tax system.
Dates and deadlines
If you think you may have to do a tax return, there are some key dates and deadlines that you should be aware of.
The tax year runs from 6 April to 5 April every year.
The self assessment deadline is 31 January. Both the return and any tax owing for the previous tax year, which would have ended on 5 April the previous year, must be with HMRC by this date.
There are also two payment on account deadlines. The first is 31 January and the second 31 July. The first of these relates to the tax year the 31 January deadline falls in and the second is for the tax year that has just ended. Any balance still owing is paid at the next 31 January deadline.
If you need to do a tax return but HMRC has not asked you to, the deadline to inform the tax authorities is 5 October for the previous tax year.
Paper tax returns should be with HMRC by 31 October for the previous tax year.
If you want HMRC to collect your tax through your PAYE code, you must notify it by 30 December of the tax year that ended earlier that year.
If you realise you have made a mistake in your tax return, you have 12 months to put it right – that is, until 31 January of the year after the filing deadline for the tax year for which you have submitted incorrect information.
If you have further questions about self assessment or would like advice about any aspect of tax or your business, please contact Finsbury Robinson. We are a full-service tax, accountancy and business advisory firm, and our friendly and highly experienced team is available on 020 8858 4303 or via email at info@finsburyrobinson.co.uk
