The 31 January Self Assessment tax return deadline is fast approaching. What are the financial implications if you miss the deadline?
HMRC have announced that penalties won’t apply if the Self Assessment tax return is filed by 28 February 2021, however, any tax due still need to be paid by 31 January 2021.
Firstly, there are penalties for submitting your Self Assessment tax return after 28 February.
Secondly, there are further penalties for late payment of taxes owed. If you are late with submitting both your Self Assessment tax return and payment of tax you will be liable for penalties and charges on both.
Thirdly, the penalties do not include interest. HM Revenue and Customs (HMRC) will charge interest on any tax owing and on the penalties and charges incurred as a result of the late payment of tax owed. Currently, they charge interest at a rate of 2.6%.
Late filing penalties for Self Assessment
1 day late = £100 fine from 1 March
3 months late = £10 a day fine up to a maximum of £900 (90 days) for every day it is late
6 months late = another £300 fine or 5% of the tax owing, whichever is greater.
12 months late = another £300 fine or 5% of the tax owing, whichever is greater.
Penalties for late payment of tax owing
30 days late = 5% charge on the tax owing on that day
6 months late = 5% charge on the tax owing on that day
12 months late = 5% charge on the tax owing on that day
Interest is charged on the tax owing including the amount levied in charges at a rate of 2.6%.
As an example of how penalties would be levied:
Sophie has been sent a notice to file her 2019/20 Self Assessment tax return by 31 January. She is leaving the UK at the end of the tax year and intends to sort this out when she gets to India. The fact she only owes about a £100 in tax means it’s not top of her agenda. How much will that £100 in unpaid taxes cost her when she makes her 2019/20 Self Assessment return over a year late?
For submitting the form late, she will be liable for the following penalties:
- £100 return being 1 day late
- £10 per day up to a maximum of 90 days (£900) for being 3 months late
- £300 for the return still being outstanding on 1 September 2021
- £300 for the return still being outstanding on 1 March 2022
- Total of £1,600 in penalties for a late return
For late payment of tax she will be liable for the following penalties:
- 5% of £100 for tax liability being outstanding on 1 March 2021 = £5
- 5% of £105 for tax liability being outstanding on 1 August 2021 = £5.25
- 5% of £110.25 for tax liability being outstanding on 1 February 2022= £5.51
- Total penalties for late payment of tax are £15.76 which we will round up to £16 + £100 originally owing = £116.
Then 2.6% interest on £116 = £3.02 round down to £3 so total of £119 owing.
Total for late return (£1,600) + late payment interest (£119) = Total owing after a year £1,719
Even if Sophie had only managed to submit the return and not paid the tax Sophie would have saved a substantial sum of money. In cases where the tax owing is nominal, it will be the fines for late return that are the issue as they are quite severe, up to £1,600 in the first year.
It should also be noted that if you submit a return that is incorrect, and HMRC feel that you were either careless or misleading them on the amount of tax you owe, they can charge between a further 30% to 70% of the tax owing as a penalty. In cases of deliberately concealing and misleading them, they can charge 100% as a penalty on top of the tax owed.
In exceptional circumstances, if you have a reasonable excuse as to why your tax return has been filed late, you may be able to appeal against penalty charges. Ellacotts can appeal against these charges on your behalf and we have recently been able to save our clients £1,600 by submitting successful appeal letters in HMRC on behalf of our clients.