Most taxpayers in the UK pay tax using Pay as You Earn (PAYE). This means their Income Tax is taken when they get paid by their employers or pension providers. They don’t need to do anything else.
If you have income that isn’t taxed with PAYE, then you might need to complete a tax return.
Why do I need to complete a tax return?
Here are the main reasons you may need to complete a tax return. Click through to find more information about the rules and what you need to show.
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Here are some of the other reasons you may have to complete a Self Assessment tax return:
- You are an off-payroll worker or contractor, providing services to a client through an intermediary.
- You are an employee but didn’t pay the correct amount of tax through your tax code.
- You work in a business as a partner.
- You or your partner receive Child Benefit and your income is over £60,000 from 2024.
- You are an employee but want to claim tax relief on expenses of more than £2,500 per year.
If you are not sure whether you should complete a tax return, you can check HMRC’s guidance.
What if I get a letter from HMRC?
If HMRC sends you a letter saying you need to do a Self Assessment tax return, you still have to do it, unless they agree to withdraw it. This is true even if none of the usual reasons for doing one apply to you. If you’re not sure why HMRC has asked you to fill one in, contact them and ask.
You have to tell HMRC about your income
There are some tax-free allowances for different kinds of income. For example, if you earn less than £1,000 from renting property, you don’t have to report it. You can find this information by clicking on the links above.
However, you should keep records of what you earn and what you spend. This is so you can show that you don’t earn enough to report the income.
What if I don’t tell HMRC about an income?
If you do not tell HMRC that you are receiving income from a new source by the deadline of registration deadline of 5 October, you may have to pay a penalty.
Penalties from HMRC can range from 0% to 100%, depending on the situation:
- 0% penalty if the mistake wasn’t deliberate and you tell HMRC about the income within 12 months.
- 100% penalty if you deliberately didn’t tell them and tried to hide the facts from HMRC.
Here is more information on penalties for failure to notify.
Can HMRC find out about income if I don’t tell them?
HMRC uses a software called Connect, a system that holds over 55 billion items of data relating to taxpayers. This data includes:
- earnings and pension information
- bank records from the UK and over 60 overseas countries
- savings and investment records
- credit and debit card accounts
- records of activity on on-line platforms such as eBay and Airbnb
- land registry data
- social media activity
The system is used to find if individuals and companies have not declared their income correctly, so it’s best to be as accurate as possible.