As key Self Assessment deadlines approach, it’s important to address common misconceptions about filing tax returns in the UK.
To help you navigate the process, here are 10 common myths about Self Assessment and the truths behind them, including insights from HMRC’s recent clarifications.
Myth 1: “If HMRC hasn’t contacted me, I don’t need to file a tax return.”
Truth: It’s your responsibility to determine if you need to file a tax return. You may need to register for Self Assessment if you:
Are self-employed and earn over £1,000 annually.
Receive untaxed income over £2,500 (e.g., tips or commission).
Have a total taxable income exceeding £150,000.
Pay Capital Gains Tax after selling an asset that gained value.
Are subject to the High Income Child Benefit Charge (if your income exceeds £50,000).
Earn income from UK property or land.
Use HMRC’s online tool to confirm whether you need to register.
Myth 2: “I must pay my tax bill when I file my return.”
Truth: While the filing deadline (31 January) is the same as the payment deadline, you don’t have to do both at the same time. File your return early to avoid last-minute stress, and pay your bill later as long as it’s settled by 31 January. HMRC also offers a Budget Payment Plan to spread payments over weekly or monthly instalments.
If you’re struggling to pay, contact HMRC to set up a Time to Pay arrangement.
Myth 3: “If I don’t owe any tax, I don’t need to file a return.”
Truth: Even if your tax liability is zero, you still need to declare your income. Filing a return also allows you to claim tax reliefs, such as on business expenses or pension contributions. Failure to file could result in missed refunds or penalties.
Myth 4: “HMRC will automatically remove me from Self Assessment if I no longer qualify.”
Truth: HMRC won’t automatically remove you from the system if your circumstances change (e.g., stopping self-employment or earning below £150,000). You must inform HMRC to avoid unnecessary reminders or penalties. Provide your National Insurance (NI) number and Unique Taxpayer Reference (UTR) when notifying them.
Myth 5: “Selling my old possessions online means I need to file a tax return.”
Truth: If you sell personal items (e.g., during a clear-out), this is not taxable. However, if you regularly buy or create items to sell for profit, HMRC may consider you a trader. You must file a tax return if your trading income exceeds £1,000 annually.
Online marketplaces are now required to report seller earnings to HMRC if they exceed specific thresholds. If you trade regularly, you may need to report this income.
Myth 6: “I’m not self-employed, so I don’t need to file a return.”
Truth: Self Assessment isn’t just for sole traders. You may need to file if you:
Are a limited company director and receive dividends over £10,000.
Earn taxable income from savings, investments, pensions, or foreign sources.
Receive taxable payments from a pension.
Many circumstances beyond self-employment require filing a Self Assessment tax return.
Myth 7: “It’s fine to file my tax return at the last minute.”
Truth: While filing on 31 January is legal, it’s not advisable. In the 2022/23 tax year, over 778,000 people filed on the deadline day, creating unnecessary stress and increasing the likelihood of errors. Submitting early reduces pressure, ensures accuracy, and avoids late registration penalties.
Myth 8: “I can’t file a tax return without an accountant.”
Truth: While an accountant can help with complex cases, many people can successfully file their returns themselves. HMRC’s online system provides step-by-step guidance, and errors are flagged for correction before submission.
For additional support, consider accounting software like QuickBooks or contact HMRC’s helpline. If your tax affairs are straightforward, filing your own return can save you money.
Myth 9: “I can claim all my expenses through Self Assessment.”
Truth: Sole traders can only claim expenses incurred exclusively for business purposes. For shared costs, like a phone bill, you can only claim the business portion. Allowable expenses include:
Office costs: Rent, insurance, and stationery.
Travel: Fuel, public transport fares, and accommodation.
Staff costs: Salaries, pensions, and bonuses.
Marketing: Advertising and website expenses.
Limited companies have additional options, such as:
Staff entertainment (e.g., Christmas parties).
Business mobile phone contracts.
Approved charity donations.
Always check HMRC’s rules to ensure your expenses qualify.
Myth 10: “HMRC can’t make me pay tax if I don’t file a return.”
Truth: Not filing a return doesn’t exempt you from paying tax. HMRC can estimate your liability using bank transactions, other tax returns, or data from third parties like Companies House. Failure to file can lead to fines, penalties, and potential investigations.
The Bottom Line
Whether you’re a sole trader, company director, or someone meeting other Self Assessment criteria, filing your tax return is crucial. By debunking these common myths, we hope to simplify the process and boost your confidence.
If you have any questions, feel free to leave a comment, and our team will be happy to assist.
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