How exactly do tax returns work in the UK? What do I need to know?

If you’re new to the process or want a refresher, you may be asking, “How do tax returns work in the UK?” Filing a tax return allows HMRC to calculate the correct amount of tax you owe, based on your income, expenses, and other relevant financial details. We’ll walk you through how tax returns work in the UK, covering who needs to file, the types of tax returns, and key steps in the process.

1. Who Needs to File a Tax Return?

Self-Employed Individuals and Freelancers

If you’re self-employed or work as a freelancer, you need to file a self assessment tax return to report your income and expenses. This process helps determine how much tax you owe, based on your business profits.

Individuals with Additional Income

Those with additional income, such as rental income from property, dividends from investments, or income from savings, may also need to file a tax return. This ensures HMRC has a complete view of your earnings, even if you already pay tax through PAYE (Pay As You Earn).

High Earners and Company Directors

Individuals earning over £100,000 per year and company directors must file a tax return, regardless of whether they have additional sources of income. Filing allows them to report earnings, calculate tax, and claim any applicable tax reliefs or deductions.

2. Types of Tax Returns in the UK

Self Assessment Tax Returns

Self assessment is the most common type of tax return for individuals in the UK. It’s typically required for those with self-employment income, rental income, or other non-PAYE income. The self assessment form collects details on your income, expenses, and any tax-deductible payments.

Corporation Tax Returns

Businesses registered as limited companies need to file a corporation tax return (CT600) each year. This return reports the company’s profits and allows HMRC to calculate the amount of corporation tax owed. Unlike personal tax returns, corporation tax returns are due 12 months after the end of the accounting period.

VAT Returns

Businesses with a turnover above the VAT threshold must register for VAT and file VAT returns. Typically, VAT returns are filed quarterly, and they detail the amount of VAT charged on sales and paid on purchases. This helps calculate the VAT owed to or reclaimable from HMRC.

3. Key Steps in Filing a Tax Return

Registering with HMRC

Before filing a tax return, you need to register with HMRC. Self-employed individuals must register for self assessment, while limited companies register for corporation tax. Registration is essential, as HMRC provides a Unique Taxpayer Reference (UTR) required to file returns. First-time registrants should register well before the filing deadline.

Gathering Financial Records

To complete your tax return accurately, you’ll need to gather financial records, such as income statements, bank statements, expense receipts, and any other documents that relate to your earnings and expenditures. Accurate records help ensure you file a correct return and claim all allowable deductions.

Completing the Return

Using HMRC’s online system, you can fill out your tax return step-by-step. This involves entering details about your income, expenses, tax reliefs, and any tax-deductible payments. For corporation tax returns, businesses must use the specific CT600 form and attach statutory accounts.

Filing and Paying Taxes

Once your return is complete, you’ll need to file it by the deadline and pay any taxes owed. For online self assessment returns, the deadline is 31st January. Corporation tax payments are due 9 months and 1 day after the end of the accounting period, while VAT returns follow a quarterly schedule.

4. Claiming Deductions and Tax Reliefs

Business Expenses

Self-employed individuals and businesses can claim tax deductions for business expenses. These expenses can include costs such as office supplies, travel expenses, and equipment purchases. By claiming these deductions, you reduce your taxable income, which lowers your overall tax bill.

Personal Allowances and Tax Reliefs

In addition to business expenses, certain personal tax reliefs can reduce your tax liability. For example, contributions to a personal pension scheme may be eligible for tax relief, as well as charitable donations made under Gift Aid. Claiming these reliefs helps you reduce the amount of tax owed.

5. Common Deadlines and Penalties

Self Assessment and Corporation Tax Deadlines

The deadline for online self assessment tax returns is 31st January, while paper returns are due by 31st October. Corporation tax returns must be filed 12 months after the end of the company’s accounting period. Missing these deadlines can result in penalties, which increase the longer the return is overdue.

VAT Return Deadlines

VAT returns are usually filed quarterly, with deadlines falling one month and 7 days after the end of each VAT period. Late VAT filings can result in surcharges, so it’s essential to submit these returns on time to avoid penalties.

Late Filing Penalties

If you miss a tax return deadline, HMRC may impose penalties. For self assessment, the initial penalty is £100, which increases if the return remains outstanding. Penalties for corporation tax and VAT returns vary depending on the length of the delay and the tax owed. Timely filing and payment help avoid these additional costs.

How TRW Accountants Can Help

At TRW Accountants, we provide expert assistance for anyone asking, “How do tax returns work in the UK?” We simplify the tax filing process for individuals and businesses, ensuring compliance with HMRC requirements. Whether you’re filing a self assessment, corporation tax, or VAT return, our team helps you file accurately and on time. Contact us today to see how we can make tax returns hassle-free for you.

Conclusion

In the UK, tax returns allow HMRC to assess the correct tax owed based on your income and expenses. Whether you need to file self assessment, corporation tax, or VAT returns, understanding the process ensures you file accurately and on time. By keeping track of key deadlines, gathering relevant documents, and claiming allowable deductions, you can manage your tax obligations effectively. With professional support, the tax filing process becomes more manageable, helping you avoid penalties and maximize savings. For more insights, explore our resources on What is the last date for tax return? and Who can do tax returns?.