By the time you are reading this, the 31 January deadline for submitting and paying self-assessment tax liabilities for the 2022/23 tax year will have passed. HMRC’s own estimations of non-compliance is that a week before the deadline almost 4 million taxpayers had yet to submit their returns. Given the financial penalties HMRC has up its sleeve to address non-compliance, it’s perhaps not surprising to see tax commentators openly regarding the additional revenue received as nothing short of a ‘windfall’ for the UK tax authority.
There are two Penalties at play:
Firstly, there is a fixed late-filing penalty of £100 (which applies even if there is no extra tax to pay or if the tax due is actually paid on time). This ramps up at £10 a day after three months up to a maximum of £900. After six months, a further late filing penalty kicks in of 5% of the tax due or £300, whichever is greater. After twelve months, another hike, this time to 10% or £300, whichever the greater. In other words, the later you leave it, the more painful this is going to become. Even if there is no tax due, you could be on the hook for £1,500.
The second of these penalties is late payment interest. And this is where the fun and games start. HMRC’s late payment interest is set at the Bank of England’s (BoE) base rate plus 2.5%. As the current BoE rate is 5.25%, the overall late payment interest comes in at a whopping 7.75% (the highest level for 16 years). Added to the maximum 10% of the late payment penalty, this could mean an effective penalty of 17.75%, which is pretty swingeing for what could be an inadvertent error, for instance for those who may be lucky enough to have had a pay rise resulting in a child benefit clawback or gaining extra income from savings or investments and may be blissfully unaware of the need to submit a return.
Where paying any additional tax liabilities is a problem, there are several ways to approach HMRC and hopefully avoid penalties. These include setting up online Time to Pay (TTP) settlement plans based on affordability or making a small payment based on estimated tax liabilities – ensuring both are completed on or by 31 January. Obviously, this is too late for this year! Both of these strategies would have the impact of stopping any late payment interest from accumulating.
Although HMRC can review and consider a taxpayer’s reasons for not being able to submit a tax return or pay any additional liabilities, communicating with them can be tortuous. HMRC’s automated call-answering service in the run up to the 31 January 2024 deadline terminated calls with those it deemed non-urgent prompting users to go online instead, although I suspect in reality most people just give up!
It is arguable that in a high cost of living, high-interest rate environment, now should be the time to re-think what many consider to be a manifestly draconian and somewhat arbitrary self-assessment tax penalty regime. A £1,500 penalty for an administrative oversight, when all the tax has been paid, feels massively over the top.
One improvement coming is that for the 2023/24 tax year, where your only income is through work and tax is deducted at source through PAYE) the threshold for completing self-assessment tax returns is going up from £100k to £150k. From 2024/25 this threshold is abolished altogether, which is a very welcome move and will take thousands (if not millions) out of the requirement to file a return. Whilst we might all wish for a more proportionate penalty regime going forward, my hunch is that Mr Hunt may have other more immediate priorities during the next few months…..
The world of tax is constantly changing, so keep up to date on all our news, views and opinions
20 February 2024
To find out more about what we do, please get in touch.