Your First UK Tax Return, Deconstructed

It’s almost time to handle your taxes, and if you end up waiting till the last minute you could face some severe penalties. Handling UK taxes doesn’t have to be impossible, but since there aren’t a lot of guides on the matter, we figured that we would make one for you. Thank us later! 😉

Now then, let’s get down to the nitty gritty here. The first thing you should know is that a tax return is just a form that you report details of your taxable income, as well as any capital gains. If you don’t own any major investments, you won’t have any capital gains to concern yourself with. You can also claim tax allowances and tax reliefs. This will lower your overall tax liability. HM Revenue and Customers can indeed issue a tax return to you each tax year. The tax year runs from 6 April one year to 5 April the next.

By law, if you receive a tax return, you have to fill it in. HMRC then uses the info on the return to work out your tax bill — or if you are due a tax refund.

There are only a few individuals that get sent a tax return. Generally speaking, if HMRC thinks you are paying the right amount of taxes through the Pay As You Earn (PAYE) system on wages, you aren’t going to get a tax return.

Yet what about if you are self employed? That’s right — you’re getting a tax return. If you have rental or other income from properties, you will get an annual tax return to fill out. Also, if you are a pensioner, you will not have a tax return.

There are deadlines for sending back tax returns. You will want to make sure that you pay attention to this. A paper tax return has to be received by HMRC by 31 October after the tax year has ended. However, an online tax return has to be received by 31 January following the end of the tax  year.

There are some shocking penalties for sending in a return late. If you are a day late, it’s a 100 GBP penalty — even if you don’t owe anything more! If you are three months late, there is an automatic penalty of 10 GBP a day up to a max of 900 GBP. This includes the 100 GBP penalty, for a total of 1000 GBP!

If you are six months late, you will owe five per cent of the taxes due or 300 GBP, whichever is greater, along with the other penalties.

If you’re a year late? Another five percent, or 300 GBP. You could end up paying nearly 1600 GBP in penalties without owing any taxes.

Keep in mind that you can indeed appeal, but you will need to demonstrate that you had a good reason to be late on your return.

HMRC will calculate your tax bill as long as you send in your paper return. You have to do it before the filing date of 31 October in order to have everything processed properly.

You may have to use estimated figures because you don’t have all of the information, yet waiting for the information to come in would slow down your return. You also want to make sure that you are following the instructions — you may not need to always note whether an amount is provisional or estimated. It just depends on the situation.

If you’re stuck and you need help, there are tax preparation services that handle this for you from start to finish. Either way, good luck and don’t forget your dates!

Tax free ideas

If you want to reduce the amount of tax you pay why not follow some of the ideas outlined below.


An ISA is an Investment Savings Account, and each year you are allowed to invest in either a Cash ISA or a Stocks and Shares ISA.
The annual subscription limit for the tax year 2008/09 was £7,200. You can use your whole allowance to invest in a Stocks and Shares ISA. Alternatively you can save up to £3,600 in a Cash ISA with one provider and the remainder of the £7,200 balance can be invested in a Stocks and Shares ISA with the same or a different provider.

You will also now be allowed to transfer any money held in a previous years Cash ISA into a Stocks and Shares ISA, without affecting your current allowance. If you still have a PEP (Personal Equity Plan) from the 1990s it will be renamed an ISA without affecting your annual limit for the tax year 2008/09.

The amounts you can save with an ISA are limited each tax year to those mentioned above. If you put £3,000 into a cash ISA with the 123Money Bank and then withdrew £1,000 to meet an unexpected expense you are not allowed to replace the £1,000 in the same tax year year, instead you have to wait to the following tax year as you are deemed to have utilised your ISA allowance for that year.

Premium Bonds

Premium bonds are an investment but rather than paying interest Premium Bonds offer you the opportunity to win tax free prizes if your premium bond number is selected. The minimum purchase is £100 which provides 100 Bond numbers and hence 100 chances of winning a prize. The maximum number of bonds you can own is £30,000.

Any money you invest in Premium Bonds is 100% safe as they are backed by the UK government. You can cash in all or part of your bonds at any time.

Prize draws are held every month and there are two £1 million jackpots and, at the current odds over a million other cash prizes.

The disadvantage with Premium Bonds however is that you are not guaranteed to win anything and you could have earned interest on your money had you invested it elsewhere. However, at the same time you at least know the money is secure and can be withdrawn at any time without the risk of it going down in value.

Index Linked Savings Certificates

If you invest in Index Linked Savings Certificates the value of your savings moves in line with inflation and earns guaranteed interest rates. Index linked savings certificates guarantee that the value of your investment will outstrip inflation by linking its value to the Retail Price Index. This ensures it matches the rate of inflation and on top of this the pay a fixed rate on top and as they are tax free you get to keep all the money tax free.

You can invest any amount from £100 to £15,000 in each issue of Index Linked Savings certificates.

R85 Forms

If you are a non-taxpayer then in order for your bank or building society to pay you interest without deducting tax you need to complete an R85 form. These forms should be available from your bank or building society.


If you have a spouse who is a non-taxpayer you could save money in their name and have them complete an R85 form allowing you to earn more money tax free. Similarly if you’re spouse is a lower rate taxpayer and you are a higher rate taxpayer you can save money in their name and although you will pay some tax on the savings it will be at the lower rate of tax.

Offset mortgages

An offset mortgage allows you to effectively receive interest on your savings tax free. As the interest rate charged by your mortgage provider is probably higher than those available on cash ISAs it does sound appealing. However, the mortgage providers who tend to offer these mortgages have generally charged a slightly higher rate of interest on these mortgages than for their more traditional mortgages and in these cases you are probably better advised to save more money by shopping around for a cheaper mortgage.
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Saving Up to Pay Taxes

No one likes paying taxes. However, paying them can be even worse if you do not pay them in time and you get a fine or you have to borrow money in order to be able to afford to pay them.

If you are employed then your employer will pay your tax and you will also automatically pay tax on your savings as well as on some goods that you buy. You will not have to worry about finding extra money to pay for it. However, if you are self-employed or fill out a self-assessment tax return, then you will be sent a tac bill once or twice a year and you will have to find a lump sum to pay for it. You will also have to do this if you have a business and pay corporation tax.

It can be tempting to worry about the tax when the bill appears. However, it can be a big shock and you somehow have to find the money to cover it. This can be extremely hard. It is therefore far more sensible to put some money away each month to cover the bill.

You can easily work out how much to put away as well, as long as you keep up to date with your book keeping. At the end of the month, look at your profit and then put by the amount that you will be taxed on it. You should include national insurance as well, which for a sole trader would be around 25% in total. Find a savings account, which will gave you some interest, to put the money in to and then you will be able to earn something on the money.

It might seem like hard work, but it can be a really easy habit to get in to and can benefit you a lot. If you do not normally, do your books each month, it is a good habit to get in to, because you will know how well the business is doing. It will help you decide whether you are doing anything right or wring as well as whether the company can afford to buy new things or not. It can be quicker doing it monthly too, because you will more easily be able to organise the paperwork, as if you wait for a year it may have got lost or out of order and it will be much more difficult as you will have to sort everything out before you even start.

Getting a Tax Rebate

There are quite a few people that overpay on their tax. This is for a variety of reasons, but it is therefore always wise to check that you are on the right tax code and that you are not owed any money.

If you have never checked, then it could be good to check. You will have to complete a form to say where you want the refund to go and disclose income details so that the amount of the refund can be calculated. It is fairly simple and well worth it when you get the money that you are entitled to .

You will need to talk to HMRC and explain why you think you are due a refund. If it goes back over previous tax years, then they can send the payment straight to your bank account. If it is for the current tax year, they will pay you back in your wages, if you are employed.

There are some calculators where you can work out how much tax you should be paying. By using one of these you can see whether you have been paying too much and this will help you to know if you are due a refund of some sort. You can only claim back six years, so unfortunately overpayments made before this date are lost.

You may wonder where to start with all this. You need to find a pay slip and this will have your tax code on it. Then you can go to the HMRC website and find out what this tax code means. It is actually how much you can earn before you pay tax and what tax band you are in. If you feel that this is wrong, once you have looked up what it means, then you can go to the HMRC, by telephoning them using the number on their website and request a refund and they will send you the relevant form. If this still sounds complicated, then go to the Citizens advice bureau and they will talk you through it all. You could also use a tax advisor if you income is complicated for any reason.

When To Pay Your Tax Bill?

If you pay tax as you earn, then you will pay it every month and you will not have to worry about it.
This makes paying it simple and affordable. However, if you have income form other sources, then
you will be sent a tax bill directly from the Inland Revenue.

Tax has to be paid in January and in July. For example, if you complete you 2011-2012 tax return in
April and send it out, then they will send you out a letter telling you how much you owe and when
to pay it. They will ask for what you owe to be paid in full by January 2012, but they may also use
the bill to guess what you might owe for the following year. They may then charge you some in
arrears in July. This means that you might have two bills in the year.

Some people will leave paying their tax bill until the last minute and others will pay it as soon as it
arrives. There are advantage and disadvantage to both of these.

If you pay the bill straight away, there is no chance of it being forgotten. You do not get reminders
and so if you do not pay the bill on time you will face a fine. It is never worth getting one of these
and so if you think that you are the type of person that is likely to forget to pay the bill, if you do
not get it done immediately, then pay it. Get it done as soon as you receive it.

Another good circumstance to pay it immediately is if you have the money to do so, but know there
may be a risk that you will not have that money in the future. This could happen if you know that
you tend to spend money as soon as it arrives in the bank or have some bills to pay. It is wise to
therefore, spend the money on the tax bill, in this situation, because you do not want to risk getting
a fine for not paying.

However, if you get your tax form in very early, then you will get a bill very early. It can be better
to wait to pay it until nearer the deadline. This is because you will be able to earn interest on
the money in the meantime. This is better than giving it to them and they earn the interest on it.
However, you do have to be sure that you will have the money still by the deadline and that you
will remember to pay your bill.

Understanding Tax

It is important to understand how much tax you have to pay. If you do not pay enough tax, then you get fined or even be put in prison. However, some of us just do not have the time to learn lots about it or feel that we are capable.

However, there are ways to make sure that you are paying the right amount of tax without having to understand all about it. If you are employed and you are paying tax on your investments (apart from tax free ones such as premium bonds and ISA;s) then you do not need to worry. It is likely that your tax levels are correct. However, if you have income from pensions, renting out property or are self employed, then things may get more complicated.

If you are worried that you are not paying enough tax, then you can get help. If you can afford an accountant, then they will be able to help you with that. However, if you cannot afford one, then it is possible to get help elsewhere. You can go to the citizens advice bureau or the local tax office and they will be able to help you. They will be able to look at all of your sources of income and see whether you need to complete a self assessment tax return or not.

It is a good idea to try to understand the ins and outs of tax if you can. It makes it easier to understand whether you should be paying it and how much you should be paying. If you do not understand tax, then you cannot get away without paying a fine. Ignorance is no excuse as far as breaking the law goes and so it is extremely wise to learn about it. Even if you use an accountant, it is still your responsibility to pay your bills and so if they make a mistake or do not remind you to pay a tax bill on time, then it will be you that faces the consequences and not them. It is therefore wise to know the basics at least and it is not really that difficult to grasp. Even the inland Revenue website is pretty straight forward to understand. It might seem a bit dull, but it could save you a lot of stress in the future so it is worth learning about it.

Paying Your Taxes

Some people do not think about tax very much. They collect their receipts each month and then send them off to their accountant. They do not look at how much money is going in and out of their business, they just spend what they can and hope that they will bring in enough money each month.

This is a very unwise thing to do. It means that not only do you have no idea as to whether your business is a success or not, but you also will have no idea how much tax you owe. Then when you tax bill does arrive, you may not have the money to pay it. You will not know whether the things that you are doing to promote your business are working or whether they are a waste of money. It could be the downfall of the business.

It is a much better idea to keep a track monthly of what you are bringing in and spending. Even just what you are bringing in. It will give you an idea of how much money you should be saving towards your tax bill.

If you do not have enough money to pay your tax, the Inland Revenue will not let you off, they will not let you pay it off at a later date or anything like that. They will fine you if you do not pay and then you will be in an even worse situation. It is therefore much better to keep on top of things right from the beginning. Always know roughly how well your business is doing and how much tax you owe. Then you will know exactly what you will need to pay and when and you have the money available to do so.

It is a good idea to save some money out of what you earn each month, to put towards paying your tax. Put it in a separate account if necessary, so that you know that it will not be spent by mistake. You may think that it will not be much and not worth worrying about, but you never know what your financial situation will be when the bill comes through and you need to be prepared. So be sensible and think about what you can do to make sure that you do not get any nasty surprises from the tax man. You do not want to struggle financially, when there is no need to.

Be Wary of Tax Debt – File Promptly and Properly!

Getting into the nature of UK taxes can be tricky, but it’s definitely worth doing. Yu might think that other organizations will handle your taxes completely, but this isn’t the case at all. In order to really make sure that you don’t get a nasty note from the HMRC, you will need to think a bit more carefully on UK Tax Law.

Let’s assume that you just started working. Your employer will take out your taxes using the PAYE system, which means that you usually will not have to send in any more taxes as long as enough has been collected over the year. That’s a very important thing to remember. You will need to wait for the end of the year for your income to be calculated in full, as well as your total tax liability. This can be calculated and credit is given for the tax already deducted. You might owe a bit more, but you might also owe a lot less than what’s collected.

Like in the US, you will need to make sure that you start looking at whether or not you’re going to get a refund. If you are indeed going to get a refund, then you will definitely want to file. If you already know that you aren’t going to get a refund and you paid just enough, then you can avoid filing if that’s what you want to do. It is not mandatory for everyone to file a return, just those that either want to receive their refund, or those that are looking to pay their taxes in full.

There are different tax bands that apply depending on how much money you have made for the year. There is a tax-free personal allowance which takes away some tax liability, but most people will still make more than this.

What about income from other sources? If you have investment income, this means that you’re getting interest from savings or dividends from holding shares. Interest is going to be taxed at source and you’ll get the net proceeds. It’s still important to make sure that you declare your income appropriately.

Navigating the income tax waters can be tricky at first, but there’s no need to think that you have to try to do it and all of your other taxes on your own. If you’re in a high tax band and you need help making sense of all of your taxes, then going to an accountant would be the best thing that you can do.

Good luck! Once you get used to handling your taxes, you’ll find that the process definitely goes faster over time. It’s all about the records that you’re able to keep!

Tax Evasion

Many people think that tax evasion is a good thing. They think that if they can find a way out of paying so much money to the government then it is great. It can seem like that sometimes when you look at the fact that the high earners have to support the low earners. It does seem unfair on that basis.

It is worth remembering that you can get in to trouble if you do not pay the amount of tax that you should. You can be fined or even sent to prison and so you need to make sure that if you do want to avoid paying tax, you find a legal way to do so.

If you have to pay really high amounts of tax, you might be even more tempted to think like this. You might think that it is not fair and that you should not have to pay it. You might want to try to think of ways to get around paying it. There are things that big earners do to get around it, but it can be worth talking to an accountant about it. However, not all big earners manage to not pay much tax.

It is worth thinking about the moral side of it. Although it does seem like there are some people who pay no tax ever, because they are always on benefits, it is worth thinking about the benefits of taxation. The state gives us a lot and without them charging us tax, we would not get that. It is also worth thinking about the fact that the money that is given to people in benefits is spend mainly in the UK. That injection of money in to the economy is helping the business that you own or work for and keeping you on the salary that you are on. You are a lot better off than they are, despite the fact that you pay so much out in tax.

Also think about the only sure fire way to avoid paying income tax. That is to earn nothing and live on benefits or earn less than the minimum amount to pay tax. This would not be a nice life. Trying to manage on a tiny amount of money and having no self esteem because you have no job. Being bored all day stuck at home and not being able to afford to go out and have fun. I would rather pay tax than have a life like this, wouldn’t you?

The Importance of paying The Right Amount of Tax

Making sure that you pay the right amount of tax is very important. You want to ensure that you are paying the right amount for a selection of reasons.

If you are not paying enough tax, then you may be fined and this could be very high. If your employer takes out your tax before you get paid, then it is likely that you are paying the right amount, although it is worth checking. If you are self employed, then you will need to file as self assessment tax return to make sure that you declare the money coming in to your business and the money coming out so that the right amount of tax can be charged to you. It is also important to make sure that you are paying any tax due on money made form investments, rental income from someone staying in your house or a property that you own and other sources of income. It is worth thinking about whether you are paying tax on everything that you should be. If you feel you are not, then get in touch with your local tax office and they will discuss the details with you.

Equally important, or perhaps more so, is to make sure that you are not paying too much tax. When you first start work, you will be put on a temporary tax code, which is normally too high. It is very important to get in touch with the tax office to make sure that you are paying the right amount. If you situation changes, with regards to your earnings, then it is important to let them know again, so that your tax code is adjusted.

So if you are not paying enough tax, you could face a hefty fine and will have to repay what you owe. If you are paying too much, then you are losing out on money that is rightfully yours. It is therefore very important that you check and make sure that amount of tax that you are paying on every source of income is correct. If you have any doubts, then contact your local tax office and they should be able to help you out and take a look at your circumstances and calculate what you should be paying. If you have been overpaying, they will either charge you less tax for a while or give you a lump sum.