Self-Assessment is simply a system HM Revenue and Customs (HMRC) uses to collect Income Tax and some other taxes, such as Capital Gains Tax (CGT).

Tax is usually deducted automatically from wages, pensions and savings via the P.A.Y.E. system; however, the self-employed and individuals who receive untaxed income, such as investment income and income from property, must report their income on a SA tax return.

There are however, more than a dozen other categories of individuals who must complete a SA tax return, for a full list download PDf.

Tax return deadlines and penalties

If you want to fill in a paper tax return, you must send it to HMRC by 31st October, but if you opt to fill in your tax return online, you must send it online by 31st January. Also, if you want HMRC to use your tax code to collect any tax you owe through your wages or pension, you must file online by 30th December.

Finally, failure to meet the 31st January deadline will automatically result in you having to pay a £100 penalty – even if you don’t owe any tax.

When is the tax and NIC payable

If you’re completing a tax return as a one-off, for example you’ve sold shares and have CGT to pay, then you pay any tax due on 31st January; but for anyone who must complete a tax return every year, it can be a three-stage process, unless your tax liability is less than £1,000.

For those individuals whose tax liability does not exceed £1,000, you merely pay the sum owed by the January deadline and that is it until the following year. Individuals with a tax liability in excess of £1,000 will automatically be included in the payment on account system

Payments on account

These are advance payments towards your tax bill (including Class 4 NIC if you’re self-employed) and you have to make 2 payments on account every year unless:

• Your last Self-Assessment tax bill was less than £1,000
• You’ve already paid more than 80% of all the tax you owe, for example through your tax code or because your bank has already deducted interest on your savings

The three-stage process:

1. A first payment on account is made by 31st January for the current tax year, which runs April 6 to April 5 the following year. This is normally half your previous year’s tax bill.
2. A second payment on account – which is the same amount as the first instalment – is then payable by 31st July (4 months after the end of the tax year).
3. A final balancing payment is made by 31st January the following year: this is the bill calculated on the actual income returned for the tax year less the payments you have made on account.