A reporting overview

The UK operates a Self Assessment system in which individuals themselves need to notify HMRC of the tax they owe if they have income that does not have tax deducted at source like salary and pensions. Therefore, individuals who are self employed, have rental income, have gains from shares or Crypto, will need to complete Self Assessment Tax Returns to report this to HMRC subject to certain exemptions for very small income / gains.  ​

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You are allowed to earn up to £1,000 of self employed income and / or rental income before it is reportable to HMRC. Similarly, you can make gains of up to £3,000 which are not reportable (more of this in the Taxation of Gains section).  

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The UK tax year runs from 6 April to 5 April each year. By 5 October after the end of the tax year you should notify HMRC of your requirement to complete a Tax Return. The Tax Return is the document used to report your income and gains to HMRC. If HMRC have already issued you with a 'Notice to complete' a Tax Return, you don't need to tell them again. 

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The Tax Return needs to be submitted to HMRC by 31 January following the end of the tax year. Any resulting tax payable from the Return will also be due by 31 January. Note even if you submit your Tax Return in August you won't need to make payment until 31 January. 

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How much are you taxed

Individuals are taxed on their income and capitals gains at different rates. Income tax is charged on earnings from employment, self-employment, pensions and savings. For most people the first £12,570 of income is tax free known as the personal allowance. Income above that is taxed at 20% (basic rate) for the next £37,700, then 40% (higher rate) between £50,271 and £125,140 and 45% (additional rate) in excess of this. Dividends attract a lower tax rate and both dividends and Interest can have small 0% tax rate bands that can be utilised. Higher rates of income tax apply for Scottish residents. 

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Capital Gains Tax applies when you sell assets such as Crypto, shares or property (that is not your main home) for a profit. You can make up to £3,000 tax free known as the annual exemption each year. Gains above this are taxed at 18% to the extent you remain a basic rate taxpayer and 24% from when your total income and gains exceed £50,270.

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Records to keep

All your income and gains for the year need to be shown on a Tax Return, not just the gain you have tax payable on. It is important to keep all relevant documents such as P60, P11D, bank interest certificates, Capital Gains reports etc as HMRC may request proof of these.

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Penalties for non compliance

Failure to complete Returns on time or accurately will incur penalties. Failure to complete the Return on time start with an initial £100 penalty for 1 day late however escalate reaching £1,600 as a minimum after 12 months. This can occur even if you have no tax payable. If you have tax payable, further interest and penalties are charged on late payment of the tax as well. 

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Failure to complete your Tax Return correctly can also result in penalties of up to 100% of the tax due for UK matters and higher for overseas. The size of the penalties will depend on if the mistake was careless or deliberate, whether you tried to conceal it or not, how long it took you to correct the error, and if you notified HMRC yourself or they contacted you. Going to HMRC advising of past non compliance is much better than them coming to you! While the tax system is extremely complex, it is a much cited aphorism that "ignorance of the law is no excuse". 

 

HMRC Checks into Taxpayers

HMRC carry out checks on tax payers to ensure they are reporting income and gains correctly. Some of these checks are random, others will be flagged up by the computer system as not agreeing to details HMRC already hold or are outside parameters HMRC usually see. In addition HMRC will target certain sectors that they believe are underpaying tax. Crypto is seen as one of these high risk sectors for the UK tax authorities. 

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Please note this text tries to cover the general rules for most taxpayers, however every individuals own tax affairs can be different and professional advice should be sort if you require information on which you can rely.​