4 important reasons why you may need to do a self-assessment tax return

Not everybody needs to complete a self-assessment tax return, but for some, it’s an annual rite of passage that is crucial to their financial plan.

One common misconception is that only self-employed people should self-assess. In fact, there are several reasons that might mean you need to complete your tax return, perhaps for the first time, this year.

What’s more, the deadline for letting the government know you are completing a self-assessment form for the 2023/24 tax year, if it’s your first time, is 5 October 2024. And, the cutoff for submitting your self-assessment tax return is 31 January 2025.

With this in mind, read on to discover four reasons you might need to self-assess before 31 January 2025.

1. You’re self-employed

Of course, anyone who is self-employed should self-assess annually. This includes if you are employed and run an additional business “on the side” – you still need to declare your income to HMRC.

2. Your total taxable income exceeds £150,000

Whether you’re employed or self-employed, if your total taxable income exceeds £150,000, the government requires you to self-assess.

“Taxable income” includes:

• Salary earnings
• Any additional income that could be subject to Income Tax, such as annuities and other pension benefits, income from a business, and some government benefits
• Income from a trust fund
• Interest on your savings that surpass the Personal Savings Allowance (PSA).

It does not include:

• The first £1,000 of income if you’re self-employed
• The Personal Allowance (if you benefit from it), standing at £12,570 for the 2024/25 and 2023/24 tax years
• The first £1,000 you earn from renting out property, unless you’re using the Rent a Room Scheme
• Premium Bonds or National Lottery winnings
• Income generated within tax-efficient wrappers like Individual Savings Accounts (ISAs).

If you’re unsure about whether your taxable income exceeded £150,000 in the 2023/24 tax year (for which you may need to self-assess before 31 January 2025), it could be wise to speak to your financial planner.

3. You wish to claim higher- or additional-rate pension tax relief

Even if you’re not legally required to self-assess, if you are a higher- or additional-rate taxpayer, doing so could help you save more towards your retirement.

When you make pension contributions within the Annual Allowance, which stands at £60,000 or your total earnings (whichever lower) as of 2024/25 (for most earners), the government applies basic-rate tax relief of 20%.

For example, if you paid £100 into your personal pension, tax relief of 20% would normally be applied at source, meaning the contribution only costs you £80, with the government topping up the additional £20.

However, not many people realise that if you earn within the higher- or additional-rate tax bands, you can usually claim your marginal rate of tax relief through self-assessment. This means that if you pay higher-rate (40%) Income Tax, your £100 personal pension contribution would now only cost you £60, with the remaining £40 provided by the government.

Over time, tax relief can really add up. It’s worth taking a few hours to self-assess if it means adding greater value to your pension pot, no matter what stage of your career you are in.

4. You have received capital gains or dividends

As of the 2023/24 tax year, the Dividend Allowance stood at £1,000. This means that if you received dividends, £1,000 was tax-free, but the remaining sum is likely to be subject to Dividend Tax. As of the 2024/25 tax year, the Dividend Allowance has been halved to £500.

If your dividends exceeded £1,000 in the 2023/24 tax year, you may now need to self-assess.

Similarly, the Capital Gains Tax (CGT) Annual Exempt Amount stood at £6,000 in the 2023/24 tax year, and as of 2024/25 has been halved to £3,000.

If you sold any of the following for a profit in 2023/24, you may be liable to pay CGT through self-assessment:

• Non-ISA shares
• Your second home or buy-to-let property
• Belongings worth more than £6,000 not including your car, such as heirloom jewellery
• Business shares.

It’s crucial to ensure that you have paid the right amount of tax for any given financial year.

Your financial planner can help you determine whether to complete a self-assessment tax return

If you’re new to self-assessment, you could feel confused or overwhelmed about the prospect of doing so. Or, if you usually self-assess but you’re concerned about how the reduction to tax thresholds and other important changes have affected your bill, you are not alone.

Your financial planner can help you determine whether you need to self-assess, or whether doing so might benefit you even if it’s not a legal requirement.

If you are presented with an unexpectedly high tax bill, we can help you form a long-term strategy that helps you mitigate any unnecessary tax in the future.

Get in touch

We’re here to help. Email enquiries@prosserknowles.co.uk or request a callback from one of our advisers.

Please note

This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate tax planning or trusts.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.