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If you’re not sure how to do a Self Assessment tax return, don’t panic. It’s not as complicated as it might seem. You should first work out why you need to do a tax return:
This depends on what type of tax return you need to do. The more reliefs you’re claiming and the more complicated your return, the harder it will be to do it on your own. For example, if you’re self-employed and become pregnant, you may start claiming the Maternity Allowance which will affect the calculations.
The margin for error is slim with HMRC so getting help may be worth while.
Generally, you can choose between:
There are two dates to bear in mind.
If you’ve never done your tax return before, you will need to register for Self Assessment first. This is how HMRC knows that you are earning untaxed income. You should do this by 5th October in any given year.
When it comes to paying your tax return, you should do this by 31st January the year after the tax year you’re paying for. If you’re paying your 2020/2021 tax return, this should be paid by 31st January 2022.
Make sure that you do this on time. Doing either of these things late will incur penalties.
If you’re a landlord, there are a few things to consider when you do your tax return:
If you’re only renting a room in your property, you’re covered by the Rent-a-Room scheme. You can earn up to £7,500 per year tax-free. Anything over that you’ll pay Income Tax on.
You can claim the Property Income Allowance which gives you £1,000 of your rental income tax-free. You can also claim a 20% tax relief on mortgage interest.
Read more about tax owed on rental income here.
If you’re self-employed, you only pay tax on income over the £12,570 Personal Allowance. You are also allowed to deduct your business expenses from your earnings.
If you do side gigs alongside your full-time job, you can make the most of the Trading Allowance which allows you to earn up to £1000 additional income tax-free. Beyond this, you must do a tax return at the usual rates of Income Tax and National Insurance.
When you earn over £100,000, you’re classed as a high earner. Therefore, even though you pay your taxes through your salary, HMRC needs to check your income to ensure that you’re paying the correct amount of tax. To do this, you need to do a tax return.
It’s also worth nothing that as a high earner, you can end up paying up to 60% tax! However, there are ways to reduce this. Read here to see how.
To pay tax on your profits, you should pay attention to Capital Gains Tax rates. The Capital Gains Tax Allowance in the 2021/22 tax year is £12,300. This means that any profits earned that are less than this are tax-free. There are other factors that affect the tax you owe on any investment profits, such as carrying forward losses, but it can all get a little bit complicated.
To make it simple, we have a Capital Gains Tax calculator to help you work it out.
First £12,300 are tax-free.
£1,000 taxed at 10%: £100
£6,700 taxed at 20%: £1,340
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Your total capital gains tax (CGT) owed depends on two main components:
Your overall earnings determine how much of your capital gains are taxed at 10% or 20%.
Our capital gains tax rates guide explains this in more detail.
In your case where capital gains from shares were £20,000 and your total annual earnings were £69,000:
You pay no CGT on the first £12,300 that you make
You pay £100 at 10% tax rate for the next £1,000 of your capital gains
You pay £1,340 at 20% tax rate on the remaining £6,700 of your capital gains