There are several reasons why you may not be able to pay your self-assessment tax return bill on time. Cash flow difficulties are one of the most common reasons for late payment to HM Revenue & Customs (HMRC), but it’s important to understand that you’re not alone. According to recent findings, as published in The Guardian, some 750,000 people missed the self-assessment payment deadline on 31st January 2018. Many left the filing of their tax return until literally the last minute, with over 30,000 filed during that final hour between 11pm and 11.59pm.
If you find yourself in a tight spot and unable to make your self-assessment payment on time, then you could be liable for not just interest but late payment penalties. Here we reveal what interest and penalties to expect if you fail to pay HMRC.
Interest rates have recently increased
HMRC will charge interest on the overdue amount from the day that your payment is due to the day it’s made, and with interest rates recently increasing you could be left with a lot more to pay than you first thought. On 21st August 2018, the interest rate for late paid tax increased from 3.00% to 3.25%.
Penalties apply for late payment too
With regards to penalties, you will only be charged if your balancing payment, which is due on 31st January each year, is late. The exact penalty payable depends on the length of time it’s left outstanding. If the payment is 30 days late, the penalty charged equates to 5% of the unpaid tax. If the payment is 6 months late an additional 5% of the unpaid tax is due as a penalty. Self-assessment payments that are 12 months late require an additional 5% of the unpaid tax to be paid.
Penalties on late payments on account differ, and vary based on the reason your payment is late. Fraudulent or negligent claims by taxpayers to reduce payments on account on their tax returns carry a maximum penalty. This represents the difference between the correct amount payable on account and the amount of any payment on account made.
What to do if you can’t pay on time
The best thing to do if you are approaching either one of the self-assessment deadlines and find that you cannot settle the amount of tax due is to contact HMRC as soon as possible. Whilst you may not avoid the interest that accrues as a result of late payment, you could avoid the aforementioned penalties. Where penalties can be enforced, HMRC may reduce the amount due where special circumstances apply. Please note that ‘special circumstances’ do not include inability to pay.
After informing HMRC that you cannot pay your self-assessment tax return on time, you may be able to set up a payment plan to settle your bill in manageable instalments. When contacting HMRC make sure you have your reference number, details of the amount you cannot pay and your bank account details ready.
If you would like help or advice about self-assessment contact us on 0191 251 7599.