Declaring Foreign Bank Accounts to HMRC: What income should you consider worth declaring to HMRC
If you are a citizen or foreigner that earns income in the United Kingdom (U.K.), you are required by law to disclose such income to HMRC. It is important to disclose this to avoid paying huge fines. In the event that you work in another country but reside in the U.K. either part-time or permanently, you are required to disclose your income to Her Majesty Revenues and Customs (HMRC).
In doing so, you will ensure that you pay the right amount of taxes and avoid any surprises on your tax bill or legal battles, which could be brought against you as a result.
In this article, we are going to look at the types of income you should declare to HMRC and when you ought to do so. We will equally include helpful links to enable you to make the right type of self-assessment and pay your dues to HMRC.
As a UK citizen or a foreigner, you may earn income from activities you carry out in the UK, UK businesses, or maybe selling goods and services to UK consumers.
As a result, you must declare your income to HMRC, but there is much confusion surrounding what types of income you should declare. There are notable differences between individuals or workers working for a company and registered automatically and those working for themselves.
Declaring income for full-time employees
If you are a full-time employee, you are automatically registered for National Insurance contributions, and your taxes are deducted by your company.
This is the most straightforward way to pay your income tax and disclose any income you may have in the UK. According to HMRC, the income tax you pay is based on your income. This means that people in different income brackets pay different taxes.
You have a personal allowance of up to £12,570, which means you pay 0% if you only earn £12,570 or less. If you earn between £12,571 – £50,270, you are required to pay 20% of your earnings.
Workers or employees who earn between £50,271 – £150,000, are required to pay 40%, while people earning over 150,000 pay 45% of their incomes.
Declaring incomes from investments
When you make investments in the UK, you are not automatically required to register your investments or disclose your earnings to HMRC.
For example, if you are a U.S. national who invests in a listed UK company, you will be required to pay taxes on the earnings from your investments in the U.S. and not in the UK. If you are a UK national or partly reside in the UK, you are obliged by HMRC to disclose the earnings from your investment.
All incomes earned from investment activity such as dividends from equities, bonds, commodities, currencies, or cryptocurrencies must be disclosed to HMRC.
Declaring income earned from gambling
If you earn income from gambling in any way, you are required to disclose this to HMRC, or you may be fined for failing to disclose such earnings. This is considered other income by HMRC, and it is not taxed similarly to dividends.
Disclosing income earned from inheritance
If you received an inheritance in the form of property or assets of any kind, you might begin making a regular income from this. HMRC requires that individuals disclose such income for them to be effectively taxed.
At first, the inheritance tax and subsequent tax could seem punitive, but individuals who own such investments or assets equally benefit from a tax allowance.
Disclosing income for self-employed people
As a self-employed person, you are required, by HMRC, to pay taxes as well as National Insurance on the income you earn. It is important to stay on top of all your records to decipher what you owe and need to pay.
This is not always straightforward as you could be employed in a job while working as a freelancer on another project. In such cases, HMRC will be taxing your second income at a slightly higher rate than your first income.
Declaring Foreign Bank Accounts: When should you register with HMRC?
You should register with HMRC by October 5th once the tax year ends. This should happen in the year when you become self-employed. For example, if you started working for yourself in June 2020, you are required to register with HMRC by 5th October 2021.
Remember that the tax year runs from April 5th to 6th April the following year. If you do not register on time, you may pay the penalty.
Frequently Asked Questions
How to Measure What to Pay HMRC as a Freelancer
The first step is for you to visit the HMRC website and use the tool that enables you to determine your status based on several questions. You can access this tool here and ensure you answer the questions correctly.
Do Self-employed individuals have a tax allowance?
If you are self-employed, you can benefit from the same tax allowance as someone who is employed in a regular 9-5 job. According to HMRC, the personal tax allowance is estimated at £12, 500 and this amount falls by £1 for every £2 over the £100,000 limit.
What if I am only residing in the UK for a few months a year?
If you reside in the UK only for a few days or months in the year, you will be required to use the split rule to determine what portion of your income will be paid in the UK. However, if you pay taxes in another country, you must notify HMRC.
Conclusion
If you are a UK citizen or live temporarily in the UK, you must disclose your earnings and incomes to HMRC, regardless of the source. This will ensure that you pay the right amount of tax, benefit from the right allowances and avoid paying huge fines.
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