Self-Assessment and Payment of Tax for Individuals
1 Due dates for payment
The responsibility for providing the information to calculate the tax liability of the taxpayer and making the payments lies with the individual and this information must be submitted on a self-assessment tax return (see section 4). For many taxpayers they will only have employment income, for which Income Tax and Class 1 NIC will have been deducted at source through the PAYE system and no tax return will be required.
Taxpayers with other sources of income must disclose this on a tax return and settle any income tax and Class 4 NIC liabilities along with any CGT liability.
Normal due date
Taxpayers are expected to settle outstanding liabilities by 31 January following the end of the tax year for:
Income Tax
Class 4 NIC
Capital Gains Tax.
Payments on account
Any income tax not collected at source and Class 4 NIC are payable by self assessment and payments on account (POA) may be required (capital gains tax is not included in these POA).
Due dates of the POAs are:
first POA = 31 January in the tax year (31 January 2026 for 2025/26)
second POA = 31 July following the end of the tax year (31 July 2026 for 2025/26)
Each POA = 50% of the previous year’s Income Tax and Class 4 NIC payable by self-assessment
No payments on account are due if the previous years tax payable by self assessment was ≤ £1,000, or if more than 80% of the tax liability for the previous year was deducted at source.
Note, the taxpayer can claim to reduce payments on account at any time before 31 January following the tax year. This would be done if actual Income Tax and Class 4 NIC payable is expected to be lower than the previous year. If the claim is incorrect, penalties and interest will be charged.
Janice is both an employee and is self employed. Her tax liability for 2024/25 was as follows:
£ | |
Total Income Tax liability | 12,000 |
Less tax deducted at source | (1,000) |
Income tax payable by self assessment | 11,000 |
Class 4 NIC | 2,000 |
13,000 |
For 2025/26 her total Income Tax liability was £14,000 with £2,000 being deducted at source. She had a Class 4 NIC liability of £2,500 and a Capital Gains Tax liability of £1,700.
Show how her 2025/26 liability will be settled and determine the total amount of tax to be paid on 31 January 2027.
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2 Interest on tax
2.1 Late payments
Interest is charged on late payment of tax at a rate of 8.5%.
For 2025/26:
Payment on account: | Interest runs from 1/2/2026 and/or 1/8/2026 |
Other payments: | Interest runs from 1/2/2027 |
Interest charged is not a tax deductible expense for individuals.
In addition, the late payment of the balancing payment of tax will attract penalties as follows:
If tax is paid more than 30 days late there will be a penalty of 5% of the amount due.
Further penalties of 5% will be charged where tax is unpaid after six months and then again after twelve months.
Note:
The penalties only apply to the balancing payment of Income Tax, Class 4 NIC and Capital Gains Tax paid late. Penalties do NOT apply to payments on account.
2.2 Repayment
If tax is repaid, HMRC pay interest at a rate of 3.5% p.a. from the later of the due date and the date of original payment.
Interest received is not taxable income for an individual.
2.3 Capital Gains Tax
Capital Gains Tax is mostly payable on 31 January after tax year, so 31 January 2027 for 2025/26.
A payment on account however, along with a return to HMRC, must be made within 60 days of the disposal of a residential property.
3 Notification of chargeability
An individual who receives a source of income subject to Income Tax must notify HMRC by 5 October following the end of the tax year in which the source arose.
Failure to notify HMRC will result in a standard penalty based on a percentage of tax unpaid on 31 January following the end of the tax year (see “Standard Penalties for Errors” in Rates and Allowances information provided in the exam).
4 Self-assessment tax return
Individuals complete their own tax return. The first part details income and capital gains for the tax year, the second part shows the calculation of the Income Tax liability.
The taxpayer has the choice of filing a paper return or filing electronically online. The dates by which a return must be filed depends on the method used.
All completed and signed paper returns must be filed by 31 October following the end of the tax year (31 October 2026 for 2025/26).
All online electronic returns must be filed by 31 January following the end of the tax year, which is known as 'the filing date' (31 January 2027 for 2025/26)
The 31 October date will also be the deadline for a taxpayer to complete a paper return if they wish HMRC to calculate the tax liability on their behalf. For tax returns filed online a tax calculation is automatically provided as part of the online filing service.
HMRC can amend a taxpayer's self-assessment return to correct obvious errors or mistakes within nine months of receiving the return.
The taxpayer can give notice to an officer to amend his tax return within 12 months of the 31 January filing date regardless of whether the return is paper based or filed electronically (31 January 2028 for 2025/26).
5 Late filing of returns
There will be an initial penalty of £100 if the return is filed after the due date.
If a return is more than three months late then there will be a daily penalty of £10 per day (for a maximum of 90 days).
If a return is more than six months late a further penalty of 5% of the tax due on the return will be charged (subject to a minimum of £300).
If a return is more than twelve months late a further penalty of 5% of the tax due can be charged, although a higher percentage will be charged if the failure to submit is deliberate.
6 Records
Records must be retained until five years after the filing date, which is 31 January 2032 for the year 2025/26 if the tax payer has a business or has properties to let. However records must be retained for only one year after the filing date, which is 31 January 2028 for the year 2025/26 if not in business.
Note therefore that if a person is in business and has non-business income then all records must be maintained for the same 5 year period.
A failure to retain records can result in a penalty of up to £3,000.
The maximum penalty will only be charged in serious cases.
7 Claims
All claims and elections which can be made in a tax return must be made in this manner if a return has been issued.
The time limit for making a claim is 4 years from the end of the tax year, unless a different limit is specifically set.
8 Error or mistake claim
The time limit is 4 years from the end of the tax year to correct errors in a tax return when the tax would otherwise be overcharged, for 2025/26 this will be 5 April 2030.
9 Compliance checks (enquiries)
HMRC can enquire into a taxpayer return by written notice:
Within 12 months following the date the return is actually filed.
An enquiry may be made due to:
A suspicion that income is understated
Deductions being incorrectly claimed
Other information in HMRC’s possession
Being part of a random review process
10 Discovery assessments
If HMRC do not begin a compliance check within the time period allowed they may still issue a discovery assessment at a later date to prevent the loss of tax.
If HMRC believe that not enough tax has been assessed for an accounting period they can make a discovery assessment to collect the tax.
A discovery assessment can only be made if:
HMRC could not reasonably be expected to have been aware of a loss of tax and are supplied with information to draw their attention to a contentious matter such as the use of a valuation or estimate.
HMRC can raise an assessment within 4 years from end of the tax year if there is no careless or deliberate behaviour by the taxpayer. This increases to 6 years from the end of the tax year if there is careless behaviour, and 20 years from the end of the tax year if there is deliberate error or failure to notify a chargeability to tax.
11 Appeals & Disputes
The individual can appeal against amendments to the income tax return.
The appeal must normally be made within 30 days of the amendment.
The appeal must state the grounds of appeal.
The process of the appeals procedure is as per VAT (Chapter 24).
12 Penalties for incorrect returns
The amount of penalty is based on the amount of tax understated, but the actual penalty payable is linked to the taxpayer’s behaviour, as follows:
there will be no penalty where a taxpayer makes a genuine mistake.
there will be a moderate penalty (up to 30% of the understated tax) where a taxpayer fails to take reasonable care.
there will be a higher penalty (up to 70% of the understated tax) if error is deliberate.
there will be an even higher penalty (up to 100% of the understated tax) where the error is deliberate and there is also concealment of the error.
A penalty will be substantially reduced where the taxpayer makes disclosure, especially unprompted disclosure, to HMRC.
See “Standard Penalties for Errors” in Rates and Allowances information provided in the exam
13 Income Tax Fraud
There is a statutory offence of evading income tax. The penalty may be up to seven years in prison or an unlimited fine or both.