Don't kick the tax return can down the road! Self-assessors need to act now to avoid delays and penalties

11 January 2022
 

It is human nature to leave things to the last minute, especially when it comes to filling out forms. So HM Revenue and Customs’ move last week to waive late filing and late payment penalties for filing self-assessment tax returns for one month, with the 31 January deadline looming, will have pricked the ears of those dreading the task.

The move comes as many accountants have struggled with Covid-related staff absences, leading to backlogs in tax return processing. 

The grace period means that anyone who cannot file their return by the 31 January – the official deadline for filing online - will not receive the £100 penalty as long as they file by 28 February. And anyone who cannot pay their Self Assessment tax by 31 January will not be penalised if they pay their tax in full, or set up a payment schedule (Time to Pay), by 1 April. That also goes for the 5% late payment penalty that is usually charged on any tax outstanding on 3 March.[1]

However, while this may be useful for those who are genuinely struggling to get their 2020/21 tax affairs in order, those who aren’t should resist the temptation to see it as extra time.

‘HMRC is emphasising that the deadline to file and pay remains 31 January, and it’s worth highlighting that interest on unpaid tax bills will be charged at 2.75% from 1 February,’ says Jason Hollands, managing director at online investing platform Bestinvest.

‘So the last thing reluctant form-fillers should do is kick the can down the road. In fact, now is the time to make sure all paperwork is to hand and to make yourself aware of potential snags.

‘Even if you have a tax adviser, the chances are that they are snowed under and the lack of face-to-face meetings can mean that mistakes and omissions in tax returns are more likely, and the sooner they can be cleared up the better.

‘And if you have to deal with HMRC direct with queries or problems, there could be serious waiting times and delays, if last year was anything to go by. Don’t forget, self-assessors can be fined for errors, even if they are made in good faith.’ 

Here is a checklist of items to get in order:

-             An online account with HMRC (if you do not have one you will need to be sent an activation code in the post – so get your skates on)

-             Your unqiue taxpayer reference; these can be found on correpsondence from HMRC

-             Payslips and annual P60 form

-             Details of any dividends and tax credits received during the 2020/21 tax year

-             Details of any contributions made to pensions, Venture Capital Trust or Enterprise Investment Schemes as well as charitable gifts that qualify for Gift Aid

-             Details of possible capital gains crystallised on the sale shares or other assets held outside of ISAs and pensions

HMRC has revealed that of the 12.2 million taxpayers who need to submit their tax return by 31 January 2022, almost 6.5 million have already done so. 

A record 1.8m people missed the deadline last year during the COVID19 pandemic, but thanks to leeway from HRMC did not have to pay fines as long as they filed and settled their debts, or agreed a repayment plan, by April 2021. That waiver was announced just five days before the 31 January returns deadline.

HMRC offers the chance to spread payments under the Time to Pay scheme. For bills up to £30,000 over 12 months this can be applied for online. But interest on the tax-debt will be added at 2.75 per cent – which means an extra £825 on a £30,000 bill.

Taxing times for the self-employed

COVID19-support from the Government for small business owners and the self-employed is counted as taxable income. This year’s tax return has new sections that ask the taxpayer .to declare receipt of any such payments, whether loans or grants.

These include the Self-Employment Income Support scheme, coronavirus business support grants, furlough cash and Eat Out to Help Out grants.

‘This is another potential source of confusion, delay and therefore fines, so the self-employed need to be extra vigilant with their tax returns this year, and to prepare for higher tax charges than they might have expected,’ says Hollands. 

‘Abuse of COVID19-support schemes has cost the Treasury around £6 billion, which is embarrassing to the Government, and it is to be expected that HMRC will crack down on self-assessors who omit this information, intentionally or otherwise.’

The tax return gives people the chance to confess to claiming Covid support illegitimately – in which case they will be asked to repay in full.

Once filed, don’t forget the next deadline...

While it is tempting to draw a sigh of relief once a tax return has finally been filed, Hollands points out that this deadline should serve as a reminder not to leave other important financial decisions until the eleventh hour.

‘Getting your tax return filed might be seen as firing the starting pistol on the race to use important tax allowances before the 5 April end of the tax-year. These include using ISAs and pension allowances, as well as crystallising any capital gains to maximise the annual exemptions available,’ he says. 

‘Thinking about these things now rather than at the last minute when you are under the pressure of a deadline, creates the space to make more thoughtful decisions that you are less likely to regret as well as reduce the stress.’  

 

NOTES

[1] In summary, the new deadlines are: 

31 January – Self Assessment deadline (filing and payment)

1 February – interest accrues on any outstanding tax bills

28 February – last date to file any late online tax returns to avoid a late filing penalty

1 April – last date to pay any outstanding tax or make a Time to Pay arrangement, to avoid a late payment penalty

1 April – last date to set up a self-serve Time to Pay arrangement online

About Tilney Smith & Williamson

Tilney Smith & Williamson is the UK’s leading integrated wealth management and professional services group, created by the merger of Tilney and Smith & Williamson on 1 September 2020. With £56.0 billion of assets under management (as at 30 September 2021), it ranks as the third largest UK wealth manager measured by revenues and the sixth largest professional services firm ranked by fee income (source: Accountancy Age 50+50 rankings, 2021). The Group currently operates through three principal brands: Tilney, Smith & Williamson and online investment service Bestinvest. It has a network of offices across 28 towns and cities in the UK, as well as the Republic of Ireland and the Channel Islands. Through its operating companies, the Group offers an extensive range of financial and professional services to individuals, family trusts, professional intermediaries, charities and businesses. It is uniquely well-placed to support clients with both their personal financial affairs and their business interests. Tilney Smith & Williamson’s personal wealth management services include financial planning, investment management and advice, online execution-only investing and personal tax advice. For businesses, its wide range of services includes assurance and accounting, business tax advice, employee benefits, forensic advice, fund administration, recovery and restructuring and transaction services.