Self Assessment: an overview
This guide to the legal framework is an up-date of what was ‘Self Assessment Technical 2: Self Assessment: the legal framework’, commonly referred to as ‘SAT 2’. The original SAT 2 was written in 1994 (and updated in 1995) to introduce the new Self Assessment scheme. Legislation to pave the way for the change, from HMRC assessing taxpayers to a scheme of self assessment, was included in the 1994 Finance Act. The legislation laying down the procedures for income tax Self Assessment (SA) is in Taxes Management Act 1970 (TMA).
This online legal guide was first written in 2003. It deals with the system for the assessment and collection of income tax. It describes the SA scheme as it is after more than ten years of practical operation, after changes in Finance Acts 1995 to 2009 and after decisions made by the Special Commissioners about the meaning of the legislation in TMA.
SA affects individuals, partnerships and trustees who receive tax returns, together with companies that are not resident in the UK and are not trading in the UK through a permanent establishment. It also affects individuals who do not receive a tax return, but need to claim a tax relief or allowance and companies making claims outside their company tax returns. SA has applied since the tax year 1996-97 (although for some partnerships the rules did not apply in full until 1997-98). This guidance does not deal with corporation tax Self Assessment (CTSA). For companies, CTSA applies to all company accounting periods ending on or after 1 July 1999. The CTSA scheme is described in ‘A Guide to Corporation Tax Self Assessment - For Tax Practitioners and HMRC Staff’.
Many taxpayers with simple affairs who pay their income tax through PAYE do not need to make an annual tax return. Many others file their tax return electronically through HMRC’s Internet service on the website at Those who have filed electronically in the previous year will receive a Notice, after the end of the tax year, requiring them to file a return. Others are sent a paper tax return which incorporates the notice to file. Customers who do not receive a notice to file, but have received untaxed income or made a capital gain in the tax year have to inform HMRC by 5 October following the end of the tax year. However, for National Insurance purposes a customer who starts a new self-employment must notify HMRC as soon as they start or within the first three months of self-employment.
SA includes a requirement to file returns by a fixed date. Paper returns must be filed by 31 October following the end of the tax year. The deadline for filing returns electronically is 31 January. Returns issued after 31 July following the end of the tax year must be filed three months from date of issue or 31 January if later and the return is filed electronically. For each tax year some self-employed taxpayers have to pay an initial payment on account of income tax due on 31 January in the tax year. A second payment on account is due on the following 31 July, and a final balancing payment of any residual income tax due, capital gains tax and Student Loan repayment, on 31 January following (the same as the date for filing that year’s return electronically).
Taxpayers have only one annual tax bill based on the figures in their tax return. HMRC undertake to calculate the tax liability and notify this to the taxpayer before 31 January where the tax return is received by 31 October following the end of the tax year. Tax Returns received after 31 October should contain the taxpayer’s own calculation of the tax charge (a self assessment). One of the advantages of filing a Return through the Internet service is that the tax is calculated automatically for the taxpayer. HMRC send statements of account of the taxpayer’s Self Assessment account showing charges and payments received.
Taxpayers can get help with completing their tax return through the internet service, their local HMRC office, the Helpline on 0845 9000 444, or any HMRC Enquiry Centre.
All business profits and investment income are taxed on a current year basis, and partnership profits are taxed on the individual partners rather than on the partnership itself. ITSA includes capital gains and losses as well as income.
There are automatic sanctions for failure to comply with the filing deadline. HMRC process payments and returns on receipt as though they were complete and correct, but then have the right to enquire into any return, to check its accuracy, within a fixed time limit.
This guidance contains a description of the legal framework for the Self Assessment system. It covers:
- the procedures for making personal tax returns, including the self assessment (SALF200)
- the payment of tax (SALF300)
- formal procedures for HMRC enquiries into the accuracy of returns (SALF400)
- the procedures for making partnership returns and for enquiries into the accuracy of those returns (SALF500)
- claims, elections and notices (SALF600)
- Income tax Self Assessment for non-residents (SALF700)
- other issues - assessments, employees, trustees, personal representatives and beneficiaries (SALF800).
All references to statute are to the Taxes Management Act 1970 (TMA 1970) unless indicated otherwise.