Many people believe it’s just self-employed business owners which need to complete a tax return, but there are many other individuals which are caught by the HMRC requirement for completing a tax return.
Here are some examples of individuals which may need a tax return:
1. Earnings over £50,000 AND receiving child benefits
Many people are still unaware of the requirements to complete a tax return where your earnings (up to 5th April 2024) are over £50,000 and you or your partner get Child Benefit (if doesn’t matter if the child living with you is not your own child).
Once you are over the £50,000 threshold you may have to pay the High Income Child Benefit Charge (HICBC) and therefore you will lose £1 from your child benefit for every £100 over this limit, once your earnings are above £60,000 you will lose all the benefit.
As an example, you earn £53,000 of total gross income and have received £2,074.80 in child benefit for 2 children, this means you will be required to pay back to HMRC £622 of the benefit.
Total gross income will consist of gross income from employment, dividends, bank interest, rental income and self employed profits to name a few but is after pension contributions and gift aid payments.
*note from 6th April 2024 HICBC applies to earning over £60,000 with the benefit tapered up to £80,000.
You have 2 options:
You may opt not to claim the benefit and therefore remove the requirement for completing a self assessment tax return
Continue claiming the benefit and complete the annual self assessment tax return
2. Earnings over £100,000?
One major tax implications for individuals earning over £100,000 is that you start to lose your personal allowance, everyone receives £12,570 of personal allowance which is not taxed - but once you earn over £100,000 you lose £1 for every £2 over this amount.
So once your earnings exceed £125,140 you will have lost all your tax free personal allowance. From 5th April 2023, HMRC require all individual’s with earnings over £150,000 to complete a tax return to make sure they are paying the right rate of tax.
It may still be advisable to complete a tax return if your earnings are less than £150,000 this is because you have untaxed income such as dividends, interest and profits for example. Also, if your coding notice is incorrect and you haven’t paid the right amount of tax, the tax return will correct this.
3. Employed but receiving dividends
You maybe in receipt of company dividends in addition to your other sources of income and dividends over (£1,000 for tax year 23/24 or £500 for tax year 24/25) will be taxable at the dividend rate depending on your taxable earnings bracket.
Currently the dividend rate for basic rate taxpayers is 8.75%, higher rate tax payers 33.75% and additional rate tax payers will be 39.35%.
Dividends are not taxed when you receive them so HMRC expect a tax return to determine your dividend tax liability based on all your sources of income.
4. Rental income from property
If you are renting out a property and the income (not profit) exceeds £1,000 then you are required to complete a tax return and declare the profit alongside any other income received in the tax year.
This is a common area which can be overlooked by many landlords, some landlords believe no tax is due because the mortgage payments and expenses are greater or equal to the monthly income and therefore because they haven’t made a profit no tax is due!
Only the mortgage interest receives tax relief not the capital element as this forms part of the capital gains calculations.
You may declare all income less expenses onto the return if you have made a loss though this can be offset against other rental profits in the period of carried forward and offset against the next available rental profit.
5. Sold a property that was once rented?
Where you had rental income from a property, it is likely you will be required to complete a Capital Gains Return to declare the gain (profit) from the sale of the property.
Capital gains is a complex area and there are many ways to reduce the gain especially if the property had been your main residence.
The capital gains return is in addition to your self-assessment tax (if you are required to complete one) and the figures from the capital gain must also be entered onto the self-assessment return.
6. Private pension contributions
If you make private pension contributions and you are a higher rate taxpayer you could potentially receive a tax rebate.
Most commonly, private pensions automatically give you tax relief at source at the 20% tax rate but if your earnings are above the higher rate of tax, you get additional relief but this can only be claimed through a self-assessment tax return, for example:
You earn £60,000 in the tax year 23/24 and of this amount you pay 40% tax amounting to £10,000, you then make private pension contributions of £15,000 in the same tax year.
You automatically received 20% tax relief on the £15,000 but you also receive an extra 20% tax relief on £10,000 of the pension as this is the same amount you paid higher rate tax on. This however can only be claimed through your self-assessment tax return.
7. Run a side hustle along your main employment.
Where you have income from your side hustle of more than £1,000 you are required to complete and declare this income under the self-assessment tax return.
You will need to keep a record of all your income and expenses for the tax year and if you have made a profit this will be taxed, the rate of tax will depend on you total taxable income received throughout the tax year.
8. Overseas income
If you are classed as a UK resident for tax purposes, you are required to disclose you worldwide income on a tax return even if you have already been taxed in the country you received the income from.
This can be income such as foreign dividends, employment or rental income. All income is added to the self assessment tax return and taxed at the UK tax rates, where there is a double tax treaty between the UK and the country you have received the income from, the tax already paid is then deducted from the UK tax liability originally calculated although the foreign tax is capped at the original UK tax liability and will not generate a refund.
So, if the foreign income is taxed at a higher rate than the UK it is unlikely to create a tax liability but if the foreign income is taxed at a lower rate than the UK you are more likely to generate a tax liability.
This can be complex and I would advise you seek advice on this matter.
9. Receiving pensions from multiple sources
Your pension provider will deduct any tax you owe before they pay you, but if you receive multiple pensions along with untaxed income such as dividends you will still be required to complete a self assessment tax return.
You may also want to complete a self assessment tax return if you have multiple private pensions because sometimes the PAYE coding notice from HMRC can be incorrect and any errors can be identified and tax adjusted on the tax return, which in some cases can be quicker to rectify than HMRC.
10. Self employed
Where you are working for yourself you will be classed as self employed. Even if you do not anticipate making a profit in the first years of business it’s also beneficial to declare this loss on the self assessment tax return because those losses can be utilised in other ways.
For example, losses can be offset against PAYE paid under employment or carried forward and offset against the next available profits.
These are just a some of the most common areas where a tax return is required, if you believe you may need a tax return please contact me - give me a call on 07719 328 343 or email me at lucy@hawkinsaccounting.co.uk and I will be happy to discuss your personal circumstances and how Hawkins Accounting can support you.
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