The annual deadline for submitting your online Self Assessment and paying any tax owed is end of 31st January. Most self-employed people choose to file their Self Assessments online, however it’s still possible to do so via paper forms where the deadline is by the end of 31st October.
If you don’t file your return and pay any tax due on time, you’ll face fines – and there are potential extra penalties. Therefore you cannot afford to miss the deadline!
Anyone who is required to file a return but misses the deadline receives an automatic £100 fine from HMRC. The fine is imposed regardless of whether you owe tax or not. If you fail to file within three months – that is, by the end of April – HMRC can then impose an additional £10 daily fine for the next 90 days, increasing the total penalty by £900 to £1,000.
Further penalties are imposed after six and then 12 months – and these could be based on the amount of tax you owe if a particularly large sum is outstanding.
On top of these fines, there is an interest charge on any unpaid tax.
You must also have paid the tax you owe by the 31st January. If you didn’t pay in time then you’ll face these additional fines:
HMRC runs a system called “payment on account” for those who pay most of their tax through Self Assessment. If more than 80% of your income gets taxed through PAYE, then this won’t apply to you. Otherwise, if your Self Assessment bill is more than £1,000, you’ll need to make a payment on account.
If you started as a sole trader in, November 2018, you wouldn’t have to pay tax until the Self Assessment deadline for 2018/19, which is January 31st 2020.
In addition to the 2018/19 bill that you need to settle by 31st January 2020, you also need to pay half of your total expected 2019/20 tax by the same deadline.
The other half of the 2019/20 bill is then due on 31st July 2020.
The unexpected result for many, newly self-employed people is that they typically face a tax bill which is roughly 50% higher than they had been expecting.
The size of the payment on account is based on your tax bill for the previous tax year. HMRC assumes that you will continue to earn at the same rate and, therefore, you’ll pay roughly the same amount of tax in the following year.
If you’re going into full-time work or expect most of your earnings to be taxed at source, you might be able to reduce your payment on account. But if you reduce the payment and then end up underpaying tax as a result, HMRC can charge you interest and possibly penalties on the sum involved. Your accountant will be able to advise on the best course of action.
Once you are over the initial hurdle, payments on account simply spread your tax bill across the year and can make it easier to budget.
This highlights the importance of filing your tax return as early as possible to avoid any nasty January surprises.
If you’ve missed the deadline you really need to get on with it as soon as possible. The fines and interest will just keep building up, so you need to file and pay any outstanding tax as soon as possible. If you’re already registered for Self Assessment online, all you need is financial information for the relevant tax year, such as your annual accounts and/or P60, plus details of investment profits, savings interest, pension contributions, etc.
If you aren’t registered yet, you need to start this process right away – it can take several days, or even weeks, to register as HMRC needs to send you an activation code in the post. After you receive the code you can register with HMRC online.
Once you’re registered for self assessment, filing returns in future is a straightforward process.
Keep any information you’ll need for future returns in a safe place. You should keep your records for at least 22 months after the end of the tax year the tax return is for. If you submit your 2018/19 tax return online by 31 January 2020, keep your records until at least the end of January 2021. And remember you can file your return at any time after the current tax year ends on 5th April.
At Lera accountancy we are experts at looking after people’s tax affairs. Get in touch and can take the stress away.