UHY Ross Brooke Chartered Accountants

Who hasn’t filed their tax return yet?

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Less than one month before the self-assessment submission deadline, 5.7m people still had not filed their tax return.

Over 12 million people are required to submit tax returns for 2022/23, many as a result of overlooked income such as renting out property through Airbnb, cryptoassets, having savings, investments or even foreign income, or indeed, where inflation has increased their salary and their tax code has not kept pace.

Phil Kinzett-Evans - Tax Director

Phil Kinzett-Evans advises that you should: “leave yourself plenty of time to collect all your information and enter it onto the HMRC website. In addition, anyone based abroad, should build in sufficient time to protect themselves against delay in payment processing times. The cost of getting things wrong, filing late or making errors can be extremely expensive.”

People often leave filing their tax return until it’s too late for many reasons, but this leads to them making mistakes in the rush to finalise their submission.

Some taxpayers miss the deadline because they cannot afford the tax bill and they hope that this will give some extra time in order to find the money to pay it, while for others, the tax situation is just too much for them to deal with and they misguidedly hope the problem will just go away. Of course, it won’t. Phil says: “Prepare the form early, know what your tax exposure is and then proactively take steps to agree with HMRC how you can settle the liability. The cost-of-living crisis will inevitably find more people unexpectedly able to pay liabilities they find are due.”

There are two types of penalty associated with the late filing of a tax return, and the late payment of tax. There are also penalties for ‘careless’ or ‘deliberate’ errors in the completion of the form.

Late filing gives rise to a £100 penalty on 1 February and for returns filed up to 3 months late following the usual 31 January deadline (if submitting electronically, it is earlier for paper returns), with up to a further £1,500 being due if the tax return is not submitted within 12 months of the due date.

Late payment penalties are charged 31 days after the due date for the return and then 5 months and 11 months after the due date. These total 15% of the unpaid balance for the year in question. Further unpaid tax-geared penalties arise if the tax is 12 months late or more.

For a late return for 2021/22, due on 31 January 2023 but filed and tax paid on 31 July 2024, with a £15,000 balance of tax due, the following penalties would arise:

Penalty for late filed tax return

Late return initial penalty £100
+ Late return daily penalties (90 days max) £900
+ 31 July 2023 penalty (greater of 5% of unpaid tax or £300) £750
+ 31 December 2023 penalty £750
= £2,500

Penalty for late payment

Initial 5% £750
+ Subsequent 5% £750
+ Further 5% £750
= £2,250

Interest would be charged on the £15,000 tax of around £674 in this instance, turning a tax bill of £15,000 into a total liability of around £20,800. That is a massive 38% increase!

The penalties for errors are complex and require a separate article to discuss them, although many will now be familiar with ‘careless’ behaviour as a result of the high-profile case of Nadim Zahawi. That common type of error can carry a penalty of between 0-30% if it is an ‘onshore’ error and up to 200% of the potential lost revenue if it is offshore and deliberately concealed.

It is important to remember that mistakes happen. However, deliberately lying on tax returns or evading tax payment is much more serious, with harsher penalties and potentially criminal sentences under various legislation for Proceeds of Crime, Tax Evasion and Money Laundering.

Anyone unsure about how to complete their tax return, needing to assess their tax and agree time to pay with HMRC or making a late declaration of previously undeclared income would be well advised to take professional advice from a tax adviser with experience of handling such matters.

Need help with your self assessment tax return?

If you need help with your tax returns or any aspect of tax planning for next year, please do get in touch.

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