January is a pretty predictable month. Each year you expect the gyms to be full, restaurants and pubs to be empty, and last but not least, that HMRC will put on a big advertising campaign to let us all know that the self assessment deadline is looming… this year is no different!
It is pretty hard to escape knowing that the deadline for online self assessment tax returns is 31 January, but instead of reiterating this fact to you, we would like to address what happens if you miss the deadline. Furthermore, we want to help you plan ahead to stop yourself from missing it in the future.
Each tax year runs from 6th April to the 5th April. This then needs to be reported to HMRC online by 31st January the following year.
6th April 2014 – 5th April 2015
Midnight on 31st January 2016
6th April 2015 – 5th April 2016
Midnight on 31st January 2017
6th April 2016 – 5th April 2017
Midnight on 31st January 2018
6th April 2017 – 5th April 2018
Midnight on 31st January 2019
HMRC still accept paper returns, but these need to be filed by 31st October each year, which is why more and more people opt to use the online system.
When to File
You can see from the table above that each self employed person has nearly 10 months to prepare and file their tax return (the period between 5th April and 31st January), yet increasingly we see more and more people leaving it until January to even begin thinking about collating their information.
We are advocates of being proactive, and this means preparing your information as early as possible. Think about it from a liability point of view……if you had to pay an income tax and national insurance liability of say £2,000 by 31st January, would you rather have 8 months to save for it, or 8 days? The earlier you know what you need to pay, the earlier you can start saving for it.
Types of Penalty
There are two reasons why HM Revenue & Customs would fine you:
- Late filing of your self assessment tax return
- Late payment of your income tax and national insurance contributions
Late Filing Penalties
HMRC have a tiered approach when it comes to late filing penalties. They use this approach to encourage people to file their returns as soon as possible, even if the official deadline has passed. Essentially, the longer you wait, the more you pay.
If you get to 1st February and you haven’t yet filed your self assessment tax return then you can find yourself liable for a £100 fixed fee penalty.
If you still haven’t filed your return by 1st May then you can now add a £10 daily penalty on top of your original £100 fine. This £10 is charged each day that the return is outstanding up to a maximum of 90 days (£900).
If you reach 1st August and you still haven’t filed your return, then in addition to the £1,000 fine you will already have (£100 fixed penalty plus the £900 of daily charges), you will also be charged 5% of your income tax liability or £300 (whichever is greater).
|If you then reach 1st February of the following year without filing your return, you will also be charged 5% of your income tax liability or £300 (whichever is greater) again.|
All in all you could be looking at late filing penalties of £1,600 or more depending on your liability.
|Fixed fee penalty||£ 100|
|Daily penalties for 90 days||£ 900|
|6 month penalty||£ 300|
|12 month penalty||£ 300|
Late Payment Penalties
In the same way that the self assessment returns are due to be filed with HMRC by midnight on 31st January, the liability also needs to be paid by then too.
Late payment interest is charged daily, with excess liabilities being added periodically (similar to the timescale mentioned above for late filing). These penalties can be extremely severe (up to 100% of the tax owed) if HMRC believe that you are deliberately withholding information from them.
As you can see, burying your head in the sand and hoping that it all goes away will NOT help you in this situation. The longer you leave it, the worse it will get. Find yourself an accountant and get some help if you need it, but you must do something to take action. HMRC will look more favourably towards those people who are trying to do the right thing as opposed to those who are doing nothing and ignoring them.