Taxpayers who complete self-assessment returns are being warned they face a hefty hike in charges if they fail to pay what is owed by the end of July deadline.
More than 12 million people file self-assessment tax returns every year. Their bills are paid in two instalments. The first payment on account must be made by the end of January – but there is also a second payment deadline on July 31.
Failure to pay this further bill on time lands you with late payment interest rate charges that are set to increase. The rate currently stands at 7 per cent of the amount owed, as it is set 2.5 percentage points above the Bank of England base rate.
But interest rates are expected to rise on Thursday in a bid to contain inflation, triggering an increase in the penalty to late taxpayers. Financial markets now believe the base rate may hit 6 per cent by the end of the year, raising late payment interest charges to 8.5 per cent.
But as the cost-of-living crisis continues to bite, and with summer holidays eating into our savings, there are fears that many taxpayers will fail to pay this bill on time.
Tax can be taxing: The first payment on account must be made by the end of January – but there is also a second payment deadline on July 31
Sarah Coles, head of personal finance at wealth manager Hargreaves Lansdown, says: ‘The deadline for payment on account is lurking. It hits at such a busy time of year – when families are up to their ears in summer plans – so there is huge a risk you could lose track and forget to pay.
‘Many are so focused on sorting out their paperwork on time that they then forget this part of the bill. You can end up penalised for underpaid tax – despite going through all the rigmarole of doing your tax return.’
New figures from tax specialist Thomson Reuters have also found that more than 18,000 penalties were issued by Revenue & Customs due to careless errors made on tax returns last year.
About two million people also filed their returns after the January 31 deadline – so were automatically hit by a £100 fine and interest charges on the amount owed, which is calculated daily.
Burying your head in the sand will only make matters worse – as you can be clobbered with a further £10-a- day fine for up to 90 days if you have still failed to file your tax returns. This is followed by additional fines levied after six months, followed by further penalties if you have still not filed after 12 months.
The 18,000 ‘careless error’ penalties imposed by Revenue & Customs resulted in fines that ranged from a slap on the wrist with no financial charge to fines of up to 30 per cent of the unpaid tax.
Separately, a further 10,700 taxpayers deemed to have made ‘deliberate errors’ – including attempting to conceal payments – were fined between 20 and 70 per cent of the tax amount owed.
Simon Brookings, manager of tax and accounting at Thomson Reuters, says: ‘All these penalties levied shows how important it is to ensure tax returns are accurate – and how accountancy advice is often vital. The taxman may be lenient on the first mistake but repeat offences are a red flag of trying to pull the wool over their eyes.’ Failure to pay tax owed by the July deadline not only incurs interest charges but could bring you to attention.
Those who fail to pay money owed by the July deadline – whether they forgot or simply could not find the necessary lump sum – can help avoid missing future deadlines by setting up automatic payments.
If you set up a ‘time to pay’ arrangement with Revenue & Customs, it allows you to spread the amount of tax that is owed throughout the entire year to 12 easier to pay monthly instalments – up to a maximum of £30,000.
