If you earn under £10,000, or even below the personal allowance threshold and have no tax to pay, you have to do a tax return, although there are some exceptions. In this guide, you’ll find out which exceptions may mean you don’t have to do a tax return and the steps you need to take if you do have to so that you stay on the right side of HMRC.
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Friendly Disclaimer: Whilst I am an accountant, I’m not your accountant. The information in this article is legally correct but it is for guidance and information purposes only. Everyone’s situation is different and unique so you’ll need to use your own best judgement when applying the advice that I give to your situation. If you are unsure or have a question be sure to contact a qualified professional.
1. If You Are Self-Employed
If you are self-employed, earning an income (not profit) from your business of £1,000 or less, during one complete tax year, you could take advantage of the trading income allowance, meaning your income up to this limit is tax-free and doesn’t need to be reported to HMRC so you can avoid registering as self-employed and doing a tax return.
Once your income goes over £1,000, then you can earn up to £12,570 in profit for the tax year 2021/2022 without paying income tax because of the personal allowance – the amount that everyone in the UK is entitled to earn tax-free. You’ll also be able to make a profit of up to £6,515 and £9,658 during the tax year 2021/2022 before paying Class 2 and Class 4 national insurance, respectively. Despite not having to pay Class 2 national insurance, some people choose to pay it voluntarily because it protects your ability to claim state benefits like maternity allowance and the state pension.
Confused by taxes for your business? Then read this guide to Self-Employed Tax.
2. If You Earn Tax-Free Income
There are some types of income that are tax-free meaning if you earn less than their individual thresholds during one complete tax year. This includes income such as:
- Your first £2,000 of dividend income (dividend allowance)
- Your first £1,000 of interest on savings
- Premium bonds or lottery winnings
- Income from a lodger under £7,500 (rent-a-room scheme)
- Children tax credits
- Maternity allowance
- Universal credit
- Winter fuel payments
- Disability Living Allowance
If you are not registered to do a tax return, then depending on which type you earn, you may not need to tell HMRC about it on a tax return. But if you are already registered for self-assessment, then you may need to include some of these types of income on your tax return, even though you have no tax to pay. You’ll need to check what you need to do depending on the type of income you’ve received.
3. How To Let HMRC Know You Need to Do a Tax Return
If you already fill in a tax return for another reason, for example, because you are a landlord or have dividend income, then you should not apply again. If you register for self-assessment again, HMRC will set you up on their system for a second time and expect two tax returns from you! Instead, you should complete a CWF1 Form online.
HMRC won’t let you know that you need to do a tax return because they don’t know your personal affairs. Instead, they rely on us as individuals to work out whether we need to fill in a tax return and register ourselves for self-assessment.
If you are registering because you have become self-employed, then read this guide to registering as self-employed or if you are registering a partnership, then read this guide to find out how to set up a partnership because the forms are slightly different.
How to Register to Do A Tax Return
- Visit the HMRC website
Head over to the HMRC website and choose the option to “Register Online”
- Set Up a Government Gateway Account
This is the account where you’ll manage all your taxes. HMRC will automatically generate a 12 digit number which you’ll need to use as your login and let you choose a password.
- Enrol for Self Assessment
Complete the HMRC form to register for self assessment. You’ll need to share your personal details, details about your reasons for registering to complete a tax return and make a declaration that everything you have entered is true.
- Wait for HMRC to Review Your Application
HMRC will review your application once you submit it. Within the next 10 days they will send you out a UTR number to be posted to you (can take up to 10 days). It’s a 10 digit 10 ID number that you’ll need to keep safe in the event you need to prove you are a sole trader, speak with HMRC and manage tax returns.
- Enter Your Activation Code
Finally, you’ll also be sent an activation code for your government gateway account as part of the verification process. It can take up to 28 days for this to be sent but make sure you enter it as soon as you receive it because it will expire.
- What Happens Next
Once registered with HMRC you’ll need to manage your own taxes which means declaring your income once a year on a tax return, by 31 January and paying any tax you owe once or twice a year depending on your circumstances.