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Last Updated: Tuesday, 15 June 2004, 23:06 GMT 00:06 UK
Self assessment maze explained
Money Talk
By John Whiting
Tax partner, Pricewaterhouse Coopers

John Whiting

Around nine million people are currently required to complete a tax return. Over the next few years, the Inland Revenue is making changes to the process, so that people with relatively simple tax affairs can complete shorter tax returns. A leading accountant explains how this will work - and the basics of self assessment.

Those who automatically get returns include:

  • The self employed (about half the returns issued)
  • Company directors
  • Those with untaxed income (e.g. rentals)
  • Those with "complex tax affairs" (including significant savings income, multiple pensions or capital gains)

There are other categories, including ministers of religion (of any faith or denomination) and some simply at random.

Just being in the 40% income tax bracket doesn't automatically get you a tax return.

Though if you have a lot of benefits in kind or income of more than 100,000 then you will be hearing from the taxman.

Earnings and investment income

You need to keep an eye on things because interest and rents aren't constant so you may still have to get your tax position adjusted.

To cut some people out of the tax return system, the Inland Revenue are starting this tax year to use Pay As You Earn (PAYE) codes to collect modest amounts of tax that are due from people who have earnings or pensions.

Suppose you have a salary of 40,000 and you receive bank interest of 1,000 (which will come with 200 tax deducted - enough to cover a basic rate taxpayer's tax bill).

As you're a higher rate taxpayer, you owe another 200.

Normally that means filling in a tax return; in future, more and more people will find that the Revenue try and collect the 200 through PAYE.

It means that you pay that amount of tax earlier, so you can opt out of paying this way.

At a minimum, you need to keep an eye on things because interest and rents aren't constant so you may still have to get your tax position adjusted.

Why do pensioners get tax returns?

Many pensioners never saw a tax return during their working life because PAYE coped.

But with the state pension being paid gross whilst being taxable, if the pensioner also has a couple of occupational pensions and some investment income then PAYE fails to cope with everything.

Again the Revenue is trying to exclude as many people as it can.

At least you can make sure that you get the higher personal allowances due for those aged 65 and over.

I have made a capital gain - do I have to fill in a tax return?

If your capital gain is more than the annual exempt amount (7,900 for the last tax year, 8,200 for the current tax year), then you have to tell the Revenue because tax is due.

But if not and your proceeds are less than four times the annual exemption then you don't have to fill in a form just for this reason.

The form is enormous - why is it so long?

The self assessment form can be daunting as it tries to cope with the vast range of possibilities arising from our complex tax system.

You should tell the Revenue, normally by 6 October after the tax year, if you've started to get income that they don't know about

The Inland Revenue have tried out a short tax return and some 400,000 taxpayers (primarily employees and pensioners) will have received this short, four page, version.

All being well, about 1.5 million taxpayers will get this shorter return from next year.

I've got a form - what do I do?

The short answer is fill it in and send it back to the Inland Revenue.

The shorter form is due by 30 September so the Revenue can calculate your tax for you - there is no facility for you to calculate your own bill.

The full return can be left to 31 January next year but of course you then have to do your own tax calculation.

I haven't had a form - I think I need one

If you do think you need a tax return, then contact your local tax office.

You should tell the Revenue, normally by 6 October after the tax year, if you've started to get income that they don't know about.

If you want to check the Revenue's criteria for sending out returns, visit www.inlandrevenue.gov.uk/sa/guidelines.htm.

The views expressed are solely those of Mr Whiting and are for general information only, do not constitute financial advice as defined by the Financial Services Act and are not intended to be relied on for the purposes of making an investment decision. Always obtain independent advice from a qualified, registered financial advisor before making any investment decisions.


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