Personal tax return

A personal tax return is a form that individuals are required to complete and submit to their tax authority (such as HM Revenue and Customs (HMRC) in the UK, where you are currently located) to report their income, claim any allowable deductions and reliefs, and calculate their income tax and other taxes (like Capital Gains Tax) liability for a specific tax year.  

Think of it as an annual summary of your financial dealings that are subject to taxation.

Key aspects of a personal tax return

Reporting Income

You need to declare all sources of taxable income earned during the tax year.

·      Employment income: Salary, wages, tips, bonuses, and benefits in kind.  

·      Self-employment income: Profits from your own business or freelance work.  

·      Investment income: Interest from savings, dividends from shares, rental income from property.

·      Pension income: Payments from private or state pensions.  

·      Certain social security benefits: Some benefits are taxable.  

·      Other income: This can include things like income from trusts, royalties, or certain redundancy payments.  

Claiming Allowable Deductions and Reliefs

Tax systems often allow individuals to reduce their taxable income by claiming certain deductions and reliefs.

These can include:

·      Personal Allowance: A standard amount of income that is tax-free (in the UK, this is currently a set amount per tax year).  

·      Pension contributions: Relief for contributions made to registered pension schemes.  

·      Charitable donations: Tax relief for donations to registered charities.  

·      Work-related expenses: Certain expenses incurred solely for the purpose of your employment (with specific rules).  

·      Capital losses: Can sometimes be used to offset capital gains.  

·      Other specific reliefs: Depending on your circumstances, there might be other reliefs available.

Calculating Tax Liability

Based on your reported income and claimed deductions, the tax authority calculates how much income tax (and potentially other taxes like National Insurance Contributions or Capital Gains Tax) you owe for the tax year.

Tax Year

Personal tax returns typically cover a specific tax year. In the UK, the tax year runs from 6th April to the following 5th April.  

Submission Deadlines

There are usually deadlines for submitting your personal tax return. In the UK, for self-assessment tax returns, the deadline for online filing is usually 31st January following the end of the tax year, and the deadline for paper filing is usually 31st October of the preceding tax year.  

Payment Deadlines

If you owe tax, there will also be a deadline for paying it. In the UK self-assessment system, this is usually 31st January following the end of the tax year.  

Online Filing

In many countries, including the UK with the Self-Assessment system, online filing of personal tax returns is encouraged and often mandatory for certain individuals.  

Consequences of Non-Compliance

Failure to file a tax return on time or accurately can result in penalties from the tax authority.  

Who needs to file a personal tax return?

The specific rules vary by country, but generally, individuals need to file a personal tax return if they:

·      Are self-employed or a partner in a business.  

·      Have income that is not taxed at source (e.g., rental income, income from savings and investments above a certain threshold).

·      Have income from abroad.

·      Have capital gains above a certain threshold.  

·      Need to claim certain tax reliefs or allowances that are not automatically applied.

·      Receive a notice to file a tax return from the tax authority.  

·      Earn above a certain income threshold (though in some cases, if all your income is taxed at source, you might not need to file).  

Many individuals in the UK whose tax affairs are straightforward (e.g., solely employed with no complex deductions) have their tax handled through the Pay As You Earn (PAYE) system, where tax and National Insurance are deducted directly from their wages.

However, those with more complex tax situations typically need to complete a Self-Assessment tax return (SA100).  

Therefore, a personal tax return is a vital process for individuals to fulfil their tax obligations, report their financial affairs accurately, and ensure they are paying the correct amount of tax according to the laws.