what is a tax return

Understanding Tax Returns

The term tax return can often be a source of confusion, especially for those who are not well-versed in the world of taxation. In the simplest terms, a tax return is a document that you must file with the HM Revenue and Customs (HMRC), declaring your income, capital gains, benefits, and tax allowances during a specific tax period.

Who Needs to File a Tax Return?

Not everyone in the UK needs to file a tax return. Here are some instances where you would need to submit one:

• If you’re self-employed and your income is more than £1,000
• If you’re a company director, unless it’s for a non-profit organisation and you don’t get any pay or benefits
• If your income from savings or investments was £10,000 or more before tax
• If your income from dividends from shares was £10,000 or more before tax
• If you made profits from selling things like shares, a second home or other chargeable assets and need to pay Capital Gains Tax

For a more detailed list, you can check out the HMRC website.

How to File a Tax Return

Filing a tax return in the UK is relatively straightforward. Here’s a step-by-step guide:

1. Register for Self Assessment if you’re self-employed or a sole trader, not self-employed, or registering a partner or partnership.
2. Keep records of your business’ income and expenses.
3. Fill in the Self Assessment tax return form either online or through postal mail.
4. Pay your tax bill by the deadline which is usually 31st January.

If you miss the deadline, you might have to pay a penalty. To avoid this, make sure to understand how to submit your tax return online or by post.

How to Calculate Your Taxable Income

The taxable income is the amount of income that is subject to tax, after allowances and reliefs have been factored in. To calculate this:

1. Add up your different types of income: This could be earnings from employment, profits from self-employment, pensions, rent from property, etc.
2. Subtract any tax-free allowances and reliefs you’re entitled to: This could include your personal allowance, marriage allowance, or relief on pension contributions.

For more detailed information on how to calculate your taxable income, consult the HMRC guide.

Conclusion

Understanding tax returns and your obligations is crucial for financial planning and legal compliance. It’s essential to keep accurate records of your income and expenditure throughout the year, know the deadlines, and familiarise yourself with the process of completing and submitting your return. If you’re unsure about any aspect of your tax return, it’s always best to seek professional advice or consult the HMRC directly.