Method for submitting a tax return:

Method for submitting a tax return:

One of the frequently asked questions by individuals filing a tax return for the first time is when and if they need to do so, and how the process works. While self-employed individuals, landlords, and high-net-worth individuals are often thought to be the only ones who require a Self Assessment tax return, the reality is that a growing number of people will need to complete one this year due to fiscal drag resulting from frozen tax thresholds.

Starting from October 1st, our website magazine offers six free issues, providing the most recent financial news and expert analysis, as well as a 60% discount after your trial. The dividend and capital gains tax allowances have been slashed twice since 2022, which means those with investments held outside an Individual Savings Account (ISA) are likely to pay more tax. Furthermore, higher interest rates may cause some savers to exceed the annual savings allowance, leading to a tax bill on savings interest earned outside an ISA.

The tax return deadline is not until October 31, 2025, for those who file by post, or January 31, 2026, for those who file online. However, it is advisable to prepare early to ensure a smoother process. In the 2024 tax year, 300,000 people filed their tax return in the first week, and there are other advantages to filing early, such as the ability to pay your tax bill in installments.

According to Alice Haine, personal finance analyst at Bestinvest, filing your tax return early can help keep your personal budget on track. "Paying a large tax bill at the end of January, just after the additional holiday expenses, is not something anyone looks forward to. By filing early, you can spread the payments over the next nine months, making them more manageable," Haine noted.

It is crucial to know who needs to file a tax return, as failing to do so can result in penalties from the taxman. If an individual's only source of income is their salary, and they are not self-employed, they likely do not need to file a tax return because income tax will be deducted from their salary through the Pay As You Earn (PAYE) system. Most pensioners also do not need to file a tax return if their only income is their state and private pensions, as the state pension is currently lower than the personal allowance. However, if they have additional income sources, such as savings, investments, a business, a second home, or other assets, they may need to file a Self Assessment tax return.

Business owners and the self-employed are required to file a tax return if they earn more than £1,000 before taking any tax relief, or if they are a partner in a business. Additionally, those with savings exceeding the personal savings allowance will need to file a tax return. Savings held within an ISA are tax-free, regardless of the amount of interest earned.

Those with investments held outside an ISA are subject to income and capital gains tax, as the capital gains and dividend allowances have been cut. If an individual exceeds the thresholds for the 2024/25 tax year or the total amount they sold the assets for was more than £50,000, they will need to complete a tax return. Capital gains tax is paid on investments once they have been sold, and losses incurred can help reduce the capital gains tax bill.

Individuals who own a property that they rent out may need to pay tax on the rental income. If an individual earns between £1,000 and £2,500 annually in rental income, they must contact HMRC. If they earn more than £2,500 after allowable expenses, or more than £10,000 before allowable expenses, they must complete a tax return. Allowable expenses include things like letting agents' fees, maintenance and repair costs, ground rent, and gardening fees. Rental income is taxed at the same rate as other forms of income.

Parents who pay the child benefit charge and receive child benefit but are not eligible for the full amount, must return the excess by completing a tax return. If an individual's salary (or their partner's salary) exceeds £60,000, they will have to pay back 1% for every £200 of income they earn over the amount. From this year, the government plans to launch a new digital service that allows families to repay the charge through their PAYE tax code instead of filing a tax return.

Those making £1,000 or more through side hustles like eBay or Vinted may need to declare this income, but the rules are complex. If an individual sells more than 30 items or earns more than £1,700 through the side hustle, they may need to claim the income. When filing a tax return, they can list some expenses to help reduce their tax bill, such as postage and envelopes paid for when sending items to buyers.

Other sources of untaxed income, such as tips and commission, foreign income, or royalties, may also require a tax return. If an individual is unsure whether they need to file a tax return, they can use HMRC's online tool to help determine their requirements.

In some cases, filing a tax return may be beneficial even if an individual does not owe HMRC any money. For example, higher-rate taxpayers making contributions to a pension scheme may be entitled to pension tax relief, which HMRC may owe them. All savers receive the 20% basic-rate tax back automatically, but higher-rate taxpayers may need to claim the rest back themselves. It is essential to provide an up-to-date tax code or P45 to your pension provider before making your first withdrawal to avoid overpayment.

Here's a step-by-step guide on how to file a tax return:

1. Register with HMRC by October 5th.
2. Gather documents and complete the form with personal information and relevant documents such as P60, bank statements, student loan statements, and investment account statements.
3. Submit the completed tax return, either online or by post. The online tax return deadline is January 31st.
4. Pay your tax bill by the 31st of January if you submit your tax return online or October 31st if you file by post. Penalties apply for late filers, and interest is charged at an eyewatering rate of 8.5%. Late payments may qualify for a payment plan with HMRC if the debt is £30,000 or less.

It is advisable to hire an accountant for complex tax affairs, as they can help ensure compliance and potentially reduce tax liabilities. HMRC has online tools, chatbots, and a helpline available to help with tax return queries.

1. Some individuals with investments held outside an Individual Savings Account (ISA) might pay more tax due to the reduction of dividend and capital gains tax allowances since 2022.
2. Business owners and the self-employed are required to file a tax return if they earn more than £1,000 before taking any tax relief, or if they are a partner in a business.
3. Rental income from properties may be taxable, and with annual rental income between £1,000 and £2,500, individuals must contact HMRC, while those earning more than £2,500 after allowable expenses must file a tax return.
4. Those with personal finance interests might benefit from filing an early tax return to help keep their personal budget on track, possibly spreading the tax payments over nine months for greater manageability.

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