HMRC requires a Self-Assessment tax return from anyone who meets one or more of the following criteria in a tax year:

• You were a director of a limited company (unless the company was dormant and you received no pay or benefits from it).
• You received dividends above the dividend allowance (currently £500).
• Your total income was above £100,000.
• You received income from a partnership.
• You had untaxed income above £2,500, for example, rental income or freelance income.
• You were self-employed with income above £1,000.
• You or your partner claimed Child Benefit and either of you had adjusted net income above £60,000 (the High Income Child Benefit Charge).
• You received income from overseas.
• You have capital gains to report.

If HMRC sends you a notice to complete a Self-Assessment return, you are legally required to do so, even if you believe you do not owe any tax. For most directors of limited companies, Self-Assessment is an annual obligation from the moment they take up their directorship.

A Self-Assessment tax return requires the declaration of all income received during the tax year, regardless of whether tax has already been paid on it at source. The main categories are:

• Employment and directorship income. Salary paid through PAYE, even though tax has been deducted at source, this must still be entered on the return.
• All dividends received from UK and overseas companies.
• Self-employment income. Profits from any sole trade or freelance activity.
• Partnership income. Your share of a partnership’s profits.
• Rental income. Net rental income after allowable expenses, including mortgage interest relief at the basic rate where applicable.
• Savings and investment income. Interest received above the Personal Savings Allowance.
• Pension income. State pension, occupational pensions and personal pension drawdown.
• Capital gains. Profits from the disposal of assets including shares, investment property and business assets.
• Foreign income. Income arising outside the UK.

Omitting income from a Self-Assessment return, even inadvertently, can result in penalties and interest on the tax underpaid. HMRC cross-references information from multiple sources and is increasingly effective at identifying unreported income.

The key Self-Assessment deadlines are:

• 5 April. End of the tax year. All income, gains and allowable deductions for the year are crystallised on this date.
• 31 July. Payment on account deadline (where applicable). The second payment on account for the prior tax year is due.
• 31 October. Deadline for filing a paper Self-Assessment return for the tax year ended the previous 5 April.
• 31 January. The most important deadline. Both the online Self-Assessment return AND the tax payment for the year are due. The first payment on account for the current year is also due on this date.

For example, for the tax year ending 5 April 2025, the online filing and payment deadline is 31 January 2026.

31 January is a single deadline for both filing and payment. Many people file on time but pay late, or pay on time but forget to file. Both create penalties.

The expenses claimable on a Self-Assessment return depend on the source of income to which they relate.

For self-employment income:

• All expenses incurred wholly and exclusively for the purposes of the trade, materials, tools, business premises costs, professional fees, marketing, travel on business, and so on.
• Use of home as an office, either a flat-rate claim of £6 per week or a calculation based on the proportion of home costs attributable to business use.
• Business mileage at HMRC’s approved rates (currently 45p per mile for the first 10,000 miles, 25p thereafter) where using a personal vehicle for business.

For rental income:

• Allowable expenses include mortgage interest (restricted to the basic rate tax credit), letting agent fees, repairs and maintenance, buildings insurance, and services provided to tenants.
• Capital improvements, adding an extension, for example, are not allowable against rental income (though they may reduce a capital gain on disposal).

For employment income, the expenses that can be claimed are very limited, only those incurred wholly, exclusively and necessarily in the performance of the duties of the employment. This is a much stricter test than for self-employment.

Payments on account are advance payments toward the following year’s Self-Assessment tax liability. They apply where the tax bill for a year exceeds £1,000 and less than 80% of the tax liability was collected at source through PAYE.

Two payments on account are made each year:

• First payment: 31 January (alongside the balancing payment for the prior year).
• Second payment: 31 July.

Each payment on account is 50% of the prior year’s tax liability. For example, if your 2023/24 Self-Assessment tax bill was £6,000, you would pay £3,000 on account on 31 January 2025 and a further £3,000 on 31 July 2025, regardless of what your 2024/25 income actually is.

If you expect your income to be lower in the current year, you can apply to reduce your payments on account. However, if you reduce them too far and the actual bill is higher, interest will apply to the shortfall.

Payments on account are one of the most common sources of financial shock for new directors or newly self-employed individuals. In the first year of filing, a tax bill can effectively require three payments: the balancing payment for the year just ended plus two payments on account, all within a few months.

HMRC imposes automatic penalties for late filing of Self-Assessment returns:

• 1 day late: automatic £100 penalty.
• 3 months late: daily penalties of £10 per day, up to a maximum of £900.
• 6 months late: a further penalty of 5% of the tax due, or £300, whichever is greater.
• 12 months late: a further penalty of 5% of the tax due, or £300, whichever is greater. In cases of deliberate withholding of information, the penalty can be up to 100% of the tax.

Interest also accrues on any unpaid tax from the 31 January deadline.

The £100 penalty applies even if no tax is due, it is a penalty for failure to file, not failure to pay. This catches many people who believe that because they have no tax to pay, there is no consequence in filing late.

Penalties can be appealed if there is a reasonable excuse, a serious illness, bereavement or HMRC system failure, for example. However, ‘I forgot’ or ‘I did not know’ is generally not accepted.

HMRC distinguishes between different types of error, and the consequences vary accordingly:

• Careless error. An error that a reasonable taxpayer exercising reasonable care would not have made. Penalty of up to 30% of the potential lost revenue, reduced for disclosure and co-operation.
• Deliberate error. An incorrect entry made knowingly. Penalty of up to 70% of the potential lost revenue.
• Deliberate and concealed error. Penalty of up to 100% of the potential lost revenue.

These penalties are in addition to the tax owed and interest.

If you discover an error on a filed return, you can amend it within 12 months of the 31 January filing deadline for the year in question. Amendments beyond that point require a formal claim or, in cases of significant underpayment, a voluntary disclosure.

The best approach to errors is to disclose them promptly and voluntarily. Penalties are significantly reduced for taxpayers who bring errors to HMRC’s attention before HMRC identifies them through compliance activity.