This is something that most of us put off until the last minute, simply because you’re busy or you would simply rather do something else! However, we have put together a few notes of basic understanding, and important information on deadlines to make it easy for you to avoid those dreaded penalties.
What is a self-assessment?
In simple terms, tax self-assessment is a process designed by HMRC (UK) and the IOM Tax Office of calculating the tax amount that you owe (or you can claim back) at the end of every tax year, which ends on 5th April, based on the income you earned during that year. It is your responsibility to complete this process and notify the tax authorities of how much tax is owed by you (or to you). This is done by way of completing a standardised tax return and submitting it either on paper or online. Note that this is a personal tax and therefore does not apply to companies.
Who should complete a self-assessment?
Most taxpayers! The most common are listed below:
In the UK, if your only source of income is a salary or wage, then you are not usually required to complete a self-assessment because the tax amount is calculated via the Pay As You Earn (PAYE) system, and is paid on a monthly / weekly basis when you receive your salary or wage.
In the IOM, even if your only source of income is a salary or wage, you are still required to complete a self-assessment. This is also despite that fact that there are PAYE deductions from your salary or wage on a monthly or weekly basis.
• Self-employed (including registered business names)
Both in the UK and IOM, sole traders and registered business names (not limited companies or LLPs) are required to register with the tax authorities for purposes of self-assessments and submit tax returns. Tax is calculated based on the profits earned from the business.
• Property owners that have rental property that is not owned through a company
If you own property that you rent out, tax is calculated based on where the property is located, irrespective of residence status. So, if you are an IOM resident with property in the UK, you will be required to complete a UK self-assessment over and above any IOM self-assessment in the IOM for income you have earned on the Island.
• Partners in a partnership
A partner in any form of partnership, LLP or otherwise, is required to complete a self-assessment as they are taxed based on the untaxed partnership profits that they share amongst themselves.
- Child benefit receivers
- Interest income earners
- Shareholders who received dividends
- More information, including documentation needed to complete self-assessments, is available in a detailed blog on our website at the following link:
What about residence status?
Self-assessments are completed in the jurisdiction you are resident in based on world-wide income, with the exception of property rental income, where you are tax based on where the property is located. Therefore, if you are resident in the IOM and earn income overseas (non-property income), you have to declare the overseas income to the IOM Tax Office.
What are the deadlines?
The last tax year ran from 6th April 2018 to 5th April 2019 both in the UK and IOM.
In the UK, the first deadline to think of is to ensure you are registered with HMRC for self-assessments, especially for sole traders / self-employed and partnerships. The deadline for registration is 5th October 2019.
If you are submitting paper tax returns, the deadline for submission is 31st October 2019. If you are submitting online tax returns, the deadline is 31st January 2020. In both instances (paper or online), you should pay any outstanding amounts due by 31st January 2020.
In the IOM, one deadline date applies to all; registrations, paper and online tax returns should all be done by the 6th October 2019. Any tax due per the self-assessment should be paid by 6th January 2020.
Note that the submission deadlines are the crucial dates which trigger late penalty fees, NOT the payment date deadlines. Therefore, it is important to submit the returns on time per the dates specified above.
What happens when you submit late?
Penalties are incurred!
In the UK, a £100 late penalty fee is charged if you are up to 3 months late in submitting the tax return. Beyond 3 months deadline, HMRC will calculate an additional penalty based on the time elapsed, which could accrue to over £300 in most instances. Interest will also be incurred if you pay the tax due after the deadline date of 31st January 2020.
In the IOM, a £100 late penalty fee is charged immediately after you pass the 6th October 2019 deadline, and an additional £200 penalty will be charged if the tax return is still not submitted after 6 months of the deadline date.
What can Invicta do for you?
Invicta has the benefit of using online platforms to easily register you and your business, compute your tax liability, and submit your tax returns online, reducing the need for paperwork. We will act as your tax agent, removing the administrative burden associated with tax return preparation and submission, ensuring that your returns are submitted on time in order to avoid penalties.
Call Invicta Accounting on 01624 672358 or email us at email@example.com to find out more about how Invicta can assist you.