How do you file a tax return and when is the best time to do it?

Another tax year has ended and a new one has started – which means it's time to start thinking about your tax return.

Self-assessment tax return form and calculator on a table.
(Image credit: Getty Images - Peter Dazeley)

Filing a tax return can feel like a daunting task – but it’s better to act early to avoid unnecessary stress, delays, and the risk of fines.

About 295,000 people submitted their tax returns in the first week of the new tax year, almost 10 months ahead of the deadline, according to HM Revenue and Customs (HMRC). Almost 70,000 people filed their return on the opening day this year (6 April).

As well as avoiding last-minute panic - and a £100 fine for missing the deadline (penalties can spiral to more than £1,000 plus 7.75% interest on late tax payments) - filing early can help with budgeting as you can spread the cost of your tax bill. 

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Customers can set up a payment plan to make direct debit payments towards their next self-assessment tax bill.

You might think tax returns are only for the self-employed and ultra-high earners. However, more people than ever will need to complete a self-assessment tax return this year as the government kept tax thresholds frozen while cutting the dividend and capital gains allowances.

Thousands of pensioners are also going to have to start paying tax as a result of the generous 8.5% rise in the state pension, and may need to fill in a tax return.

Furthermore, with interest rates now much higher, lots of savers could find themselves paying tax on their savings income for the first time. 

Most basic-rate taxpayers can earn up to £1,000 in savings income before tax is due. However, higher-rate taxpayers only have a £500 allowance, while additional-rate taxpayers don't have any personal savings allowance.

With some savings providers now offering inflation-busting rates of 5% or more, you could cross into the threshold as soon as you hold £20,000 or less in your savings account. 

If you are filing a self-assessment tax return for the first time, here’s what you need to know. We also share some tips and reminders for old timers.

Do I need to file a self-assessment tax return?

A common reason for falling foul of the taxman is simply not knowing that tax was due. 

If your only source of income is your salary, and you are not self-employed, then you probably don’t need to file a tax return (unless you are a very high earner). Your income tax will be deducted from your salary before you receive it through a process called “pay as you earn” (PAYE). Your employer will look after this on your behalf.

However, if you also earn income from savings, investments, a business, a second home, or another source, then it is likely that you will need to file a self-assessment tax return. The same is true if you are self-employed. We take a closer look at the rules.

Business owners and the self-employed

If you run your own business and work for yourself, you will need to file a tax return. This becomes a requirement once you earn more than £1,000 (before taking off anything you can claim tax relief on).

You will also need to complete a tax return if you are a partner in a business.

Income earned on savings

Most people can earn a certain amount of interest on their savings without having to pay any tax at all. However, with some providers now offering savings rates of 5% or more, you might be surprised at how quickly you can exceed this threshold. 

If you are a basic-rate taxpayer, then you are entitled to earn up to £1,000 in tax-free interest. This is called the personal savings allowance. This falls to £500 for higher-rate taxpayers, while additional-rate taxpayers aren’t entitled to anything at all.

There is an additional allowance of up to £5,000 if you are a low earner, also known as the starting rate for savings. You will only be entitled to the full amount if you earn less than £12,570, but will still qualify for some of it up to £17,570. 

Once you exceed these thresholds, you will need to file a tax return. 

Capital gains and investment income

Most investments are subject to income and capital gains tax, if they are held outside an ISA. The capital gains and dividend allowances for the 2023-2024 tax year were £6,000 and £1,000 respectively, however they have been slashed to £3,000 and £500 respectively going forward.

If you exceeded the thresholds for the 2023-2024 tax year, you will need to complete a tax return. It is worth remembering that capital gains tax is paid on investments once they have been sold. You are able to deduct any losses to help lower your capital gains tax bill

Tax for landlords on second homes

If you own a property that you rent out to tenants, then you will be liable for tax. The rules vary depending on whether you own the property personally, or run a property business.

If you own the property personally, the first £1,000 of rental income is tax-free. Otherwise, the following rules apply, as outlined on the government website:

  • If you earn between £1,000 and £2,500 a year, you need to contact HMRC.
  • If you earn between £2,500 and £9,999 after allowable expenses, or £10,000 or more before allowable expenses, you need to complete a tax return. Allowable expenses include things like letting agents’ fees, maintenance and repair costs, ground rent, and gardening fees.

Rental income is taxed at the same rate you pay on other forms of income, such as your salary. You will need to declare this on a tax return form. 

If you have multiple properties and run them as a buy-to-let company, the rules are different. We look at the pros and cons of this approach for buy-to-let landlords

High earners 

If your annual income is over £150,000, you will need to complete a self-assessment tax return form before the deadline this year – even if all of your income comes from your PAYE salary. 

However, this is changing going forward. 

In his Autumn Statement, Jeremy Hunt confirmed that this rule would be abolished from the 2024-2025 tax year, simplifying the tax return process “for up to 338,000 taxpayers”. 

Parents who pay the child benefit charge

If you receive child benefit but aren’t eligible for the full amount, then you need to return the excess by completing a tax return form. 

Child benefit payments are means-tested, and are only paid to families where the highest-earning parent earns less than a certain threshold. Hunt raised this threshold from £50,000 to £60,000 in the Spring Budget on 6 March. However, this kicked in on 6 April 2024, so it won’t impact your upcoming tax return. 

So, if you or your partner have an income above £50,000 and you receive child benefit, you may need to complete a tax return and pay any tax owed.

Hunt also revealed that the government is looking into further reforms. At present, child benefit payments are based on the higher-earning parent’s income – an approach that has been criticised for being unfair. Currently, if one parent earns £61,000 and the other earns nothing at all, you will be eligible for less child benefit than families where two parents earn £59,000 each. 

This is something to keep an eye on going forward, in case you are able to reduce your tax bill further down the line.

Other untaxed income

HMRC points out that you may also need to complete a tax return if you received any other untaxed income, such as Covid-19 support payments, tips and commission, or foreign income. 

If you are still not sure whether you need to complete a tax return, you can use HMRC’s online tool to help. 

Other reasons to file a tax return

Sometimes, it is in your best interest to file a tax return – even if you don’t owe HMRC money. 

For example, if you are a higher or additional-rate taxpayer making contributions to your workplace pension scheme, HMRC could actually owe you money in the form of pension tax relief. All savers get the 20% basic-rate tax back automatically. However, if you are a higher or additional-rate taxpayer, you may need to claim the rest back yourself, depending on the type of pension scheme. You can do this by filling out a self-assessment tax return form.

Likewise, if you have started drawing from your pension pot and HMRC isn’t applying the correct tax code on your pension income (this is very common), then you can complete a tax return to claim a refund. Alternatively, you can avoid this overpayment in the first place by providing an up-to-date tax code or P45 to your pension provider before making your first withdrawal. 

How do you file a tax return?

If you haven’t filed a tax return before, the first thing you need to do is register with HMRC by 5 October 2024. Once you have registered, you will receive your Unique Taxpayer Reference number. 

If you have registered with HMRC in previous years, but didn’t complete a tax return last year, you will need to re-register. 

When completing your tax return, you can choose to do it online or by filling out a paper form. The final deadline for the former is 31 January 2025. For the latter, it is 31 October 2024.

You will need to include some personal information such as your name, address, date of birth, National Insurance number, 10-digit Unique Taxpayer Reference number, and your employer reference code (if you have one). 

You should also collect any relevant documents and have them to hand when filling out the form. These could include your P60, bank statements, student loan statements, and any investment account statements.  

The tax return form is divided into several sections, which ask you to detail:

  • Any income you received (e.g. through interest, dividends or your pension)
  • Tax reliefs
  • Student loan repayments
  • Any money you owe as a result of the child benefit charge
  • Any marriage allowance you would like to transfer to your spouse or civil partner

Depending on your circumstances, you may need to complete some separate supplementary pages. For example, you will need to do this if you are self-employed.

If you file online or get your paper tax return back to HMRC by 31 October, they will use this information to calculate how much tax you owe on your behalf. You can then pay this by the 31 January deadline.

How do you pay any tax that is owed?

If you owe less than £3,000 on your tax bill, you can usually pay it through your PAYE tax code. HMRC will then automatically collect it from your salary. It will be deducted in instalments over the next 12 months. 

Alternatively, you can pay through your online bank account, by debit or credit card, at your bank or building society, or by cheque through the post. You should follow the guidance shared on the government website

Once you have made the payment, you should also check that it has been received by logging into your HMRC online account 3-6 working days later. 

What happens if you have paid too much tax?

If HMRC owes you a refund, you can complete an additional section on the form to detail how you would like to receive this (by bank payment or cheque). If HMRC already has details for you (e.g. credit or debit card information), they will try that first.

When is the best time to file a tax return?

The final deadline for an online tax return is 31 January 2025. If you decide to file a paper return, you only have until 31 October 2024. 

However, if you want to get ahead, you can submit your tax return right away now that the 2023/2024 tax year is over. It is usually good advice to act as soon as possible to avoid unnecessary delays and stress, and to leave time for any queries that come up. 

Filing early can also help with budgeting, as you can set up a budget payment plan to make weekly or monthly direct debit payments towards your tax bill.

Refunds of overpaid tax will also be paid as soon as the return has been processed.

In recent years, HMRC has seen more and more customers file their tax returns early. Last April, 246,210 people submitted their returns in the first week of the new tax year. Last month, 295,250 people did.

"UK taxpayers might have until 31 January, 2025, to file their tax return but increasing numbers of people are realising the benefits of getting this task completed early," notes Alice Haines, personal finance analyst at Bestinvest by Evelyn Partners, the online investment service.

"Filing early gives people time to ensure the information they input is correct, avoiding the stress that comes with leaving it to the last minute, and struggling to find the relevant paperwork. It also reduces the risk of missing the deadline and being fined and can ease the burden of having an urgent big bill to pay."

She adds that those in the fortunate position to be entitled to a refund will receive "an instant rebate the moment the return is processed - money that could be put to good use earning interest in a savings account rather than sat in HMRC’s coffers".  

If you have any difficulties filing your tax return, contact HMRC’s self-assessment helpline on 0300 200 3310 during its opening hours (Monday to Friday, 8am to 6pm). 

The good news is that HMRC recently reversed its decision to close the helpline between April and September this year – so there’s really no excuse for putting off your paperwork. 

Katie Williams
Staff Writer

Katie has a background in investment writing and is interested in everything to do with personal finance and financial news. 

Before joining MoneyWeek, she worked as a content writer at Invesco, a global asset management firm, which she joined as a graduate in 2019. While there, she enjoyed translating complex topics into “easy to understand” stories. 

She studied English at the University of Cambridge and loves reading, writing and going to the theatre.