When it comes to the self assessment tax return there are two penalty regimes to consider:
Late Filing
As we know the date for filing the self assessment tax return has been moved to 28th February 2021 from 31st January 2021. This is a one year change and will revert to 31st January next year and beyond.
If your return is not filed by 28th February 2021 the following penalties apply:
| Late by | Penalty to pay |
| 1 day | £100 |
| 3 months | £10 a day, for a maximum of 90 days (£900) |
| 6 months | A further penalty of 5% of the tax you owe or £300, whichever is greater |
| 12 months | A further penalty of 5% of the tax you owe or £300, whichever is greater |
Late Payment of Tax Due
Tax is due for payment on 31st January 2021. If you do not pay the tax on time you will incur interest charges at a rate of 2.6%. In addition to this, and any penalty for filing your tax return late, you will incur a statutory surcharge for late payment.
Whilst the tax is due on 31st January 2021, to know how much you need to pay means that you’ll need the tax calculation produced as part of filing the self assessment which isn’t due until 28th February 2021. Confusing – who said tax isn’t taxing!
| Late payment of tax by | Penalty to pay |
| 30 days | 5% of the tax you owe at that date |
| 6 months | A further penalty of 5% of the tax you owe at that date |
| 12 months | A further penalty of 5% of the tax you owe at that date |
Time to pay
It’s worth considering paying off your tax bill in instalments not least because the 2.6% interest rate is well below most commercial loan interest rates, overdrafts or loans. It’s a sensible way to manage a tight cashflow.
Not only this but the late payment surcharges can be avoided by agreeing a time to pay arrangement with HMRC.
Conditions do apply for you to be eligible to agree a time to pay arrangement with HMRC being:
- you owe £30,000 or less
- you do not have any other payment plans or debts with HMRC
- your tax returns are up to date
- it’s less than 60 days after the payment deadline – caution with this!
Lack of transparency
The HMRC web site says that tax payers have 60 days to set up a time to pay arrangement.
According to a tweet from Caroline Miskin from the ICAEW the page with the 60 days reference on is wrong and this error has been pointed out to HMRC!
In several places it says that interest will be paid on the debt outstanding.
However there is no mention of the 5% statutory surcharge. That’s hidden in tax guidance notes and manuals which a tax payer is unlikely to know about.
So there is the potential for a very nasty shock if the time to pay arrangement isn’t set up in time to avoid the 5% surcharge.
For example a tax bill of £20,000 will incur a £1,000 surcharge on 3rd March 2021 without a time to pay arrangement in place.
HMRC should be challenged on this with pressure applied to waive the first surcharge which would normally be applied on 3rd March 2021. This approach would seem to be in the spirit of their 60 days to set up a time to pay plan.
Best Advice
No matter what your circumstances and how worried you may be about tax, do not avoid the problem. Get the self assessment tax return filed as soon as possible and before 28th February 2021 at the latest.
Arrange a time to pay plan on or before 2nd March 2021. Leave plenty of time to do this as the software doesn’t always work and the phone lines may be busy. You will need extreme patience to wade through the system or the phone lines but it will be worth doing in the end not least as a way to avoid further surcharges.
Stick religiously to any time to pay plans making payment on or before the due dates to avoid the risk of the plan failing and further charges being applied.
If you are experiencing extreme financial difficulties then the Citizens Advice have some help here:
https://www.citizensadvice.org.uk/debt-and-money/
