How to stop your self-assessment tax return coming back to haunt you

Taxpayers are facing a headache like never before as pandemic pandemonium means millions could miss the tax return deadline this year.

More than 12 million people are due to file their self-assessment tax returns online by the end of the month.

But with millions still yet to file, accountants are warning that long waiting times at HM Revenue & Customs (HMRC) and extra work created by coronavirus means as many as 2.5 million taxpayers could miss the deadline and receive a £100 penalty.

Deadline looming: More than 12 million people are due to file their self-assessment tax return online by the end of the month

The taxman has promised to be merciful this year because of the Covid crisis, and has pledged to let off anyone badly affected by the virus. 

It has also made it easier to put off payments and spread bills over a year – but with interest piled on top.

As the deadline fast approaches:

  • Taxpayers grieving or battling the virus will still get a £100 penalty and have to appeal it if they miss the deadline.
  • Accountants are struggling to speak to anyone at HMRC — with some waiting three days to talk online.
  • Hard-up households are on track to pay an extra £1.8 million by spreading the payments.
  • Self–employed workers whose incomes have not recovered face double tax bills after deferring payments from last year.
  • Tax advisers warn penalties for innocent errors could surge as they cannot meet face to face with clients.

The self-employed, retirees and people who made money from investments or property are among those required to file an online return by Sunday, January 31, to cover the 2019/20 tax year.

Anyone who misses the deadline to file is automatically fined £100. The penalty will then rise by £10 a day after three months.

FINED EVEN IF IN HOSPITAL

Penalties will be waived only if you can provide a good enough reason, and HMRC has said it will now accept coronavirus-related excuses.

But it means that those who miss the deadline because they are in hospital battling the virus or lose a family member will still be fined. To avoid the penalty they will have to appeal the decision to HMRC after the penalty arrives in the post.

Dawn Register, head of tax dispute resolution at accountancy advisory firm BDO, says it is not right to fine those hit by Covid. 

She says: ‘It can be quite alarming (to be fined). It is not about the money value, it is actually quite a horrible thing to happen to you. And you still have to appeal it, so it creates work for you.’

How you can stay out of tax trouble 

Dawn Register is head of tax dispute resolution at accountancy advisory firm BDO

Dawn Register is head of tax dispute resolution at accountancy advisory firm BDO

Dawn Register, head of tax dispute resolution at accountancy advisory firm BDO, says:

1. Don’t forget your claims

Use the tax return to claim a refund or reduce the overall tax bill, for example, pension tax relief and gift aid on charitable donations. 

For those who have lost their job or ceased trading, then there may be an opportunity to claim back unused personal allowances and offset any losses before their business closed. 

HMRC also published updated guidance on claiming allowances when many people have switched to working from home.

2. File come what may (By January 31)

Even if you cannot pay in full, it is still best to file on time to avoid or minimise penalties. 

Both late payment and late filing penalties can be charged by HMRC, and these are usually issued automatically after January 31.

3. Go online and set up a payment plan

Set up a Time to Pay arrangement online if you cannot afford to pay in full. You must wait 48 hours after your tax return is filed, then if the liability is less than £30,000 you can set this up online yourself without needing to speak to HMRC.

4. Communicate with HMRC

Phone HMRC in advance if you cannot pay in full and you cannot use the online facility. As part of the Treasury’s response to Covid-19, HMRC has allocated more resources through phone and web chat support for taxpayers who need bespoke Time to Pay arrangements. For firms, this may be across all taxes.

5. Reduce your payments if needed 

Check if you can reduce your 2020-21 payments on account. Owing to the impact on business income of Covid restrictions since March last year, it is to be expected that many individuals’ income in 2020-21 will be lower compared with 2019-20. 

In these cases, it may be that reducing payments on account to HMRC can help cashflow. 

This can be done online through the gov.uk personal tax account or by post with a SA303 form.

HMRC says each appeal will be handled on a case-by-case basis too, so there is no guarantee of avoiding the £100 penalty if you fail to file on time even if you believe you have a legitimate excuse.

Jamie Morrison, head of private client at accountancy firm HW Fisher, adds: ‘HMRC may have added the option to appeal against the penalty for missing the deadline due to coronavirus. However, the guidelines remain far too vague on what exactly counts as a coronavirus-related excuse.

‘HMRC is likely to take each situation on a case-by-case basis, so we would advise anyone who needs to submit a tax return to continue to take the January deadline seriously.’

COMPLICATED CHAOS…

This year is also unique in that government support packages are counted as taxable income – adding extra complications.

The Association of Chartered Certified Accountants (ACCA) predicts as many as 2.5 million people will be fined this year because of delays.

The group says the pandemic has created so much extra work that there isn’t time to process all of their customers’ returns.

Richard Halsey, of Halsey and Co in Cheam, Surrey, says: ‘We now have to spend on average three days trying to reach HMRC on webchat just to make contact as our letters and calls go unanswered. That is one of the main reasons we are behind in filing.

‘My staff are simply having to spend disproportionate amounts of time dealing with HMRC issues and assisting with the various government Covid schemes.’

Other members blamed backlogs on staff being off dealing with childcare, while others said they could not get what they needed from elderly clients because of lockdown measures. Ms Register fears a rise in fines for errors as older clients are unable to meet their tax adviser in person.

HMRC penalises taxpayers for their mistakes – even if they were made innocently. Fines for careless errors can be as much as 30 per cent of the extra money owed.

Figures uncovered by the Labour Party showed the number of callers who gave up trying to speak to someone at HMRC after waiting on hold had soared fourfold since 2016.

Interest So far, more than 25,000 people have chosen to spread payments for debts totalling nearly £70m - meaning they will pay an extra £1.8m in interest

Interest So far, more than 25,000 people have chosen to spread payments for debts totalling nearly £70m – meaning they will pay an extra £1.8m in interest

Government figures reveal one in two customers was waiting more than ten minutes to speak to someone, and the average time on hold was 12 minutes 45 seconds.

Bridget Phillipson, the shadow chief secretary to the Treasury, says: ‘It’s crucial that people and businesses can get the tax advice that they need, when they need it.’

PROLONGING THE INEVITABLE

HMRC has promised to help those struggling to pay their bills, offering the chance to spread payments for bills up to £30,000 over 12 months by applying online. Interest on the debt will be added at 2.6 per cent – an extra £780 on a £30,000 bill.

So far, more than 25,000 people have chosen to spread payments for debts totalling nearly £70 million – meaning they will pay an extra £1.8 million in interest, accountancy advisory firm BDO says.

Sarah Coles, personal finance analyst at investment firm Hargreaves Lansdown, says plenty more will try to put off their bills, adding: ‘As the last-minute tax returns flood in, HMRC is likely to be inundated with requests to spread the cost.’

Experts also warn many could be tempted to spread payments using the ‘Time to Pay’ scheme — getting needlessly in debt.

Ms Register says: ‘It is potentially open to some form of misuse. People could take the Time to Pay when they don’t really need it.’

BILLS WILL LEAVE SOME SEEING DOUBLE

Self-employed workers whose incomes have been decimated in the pandemic will be hit with double tax bills when they file. 

This is because, as well as clearing the final bill from the 2019/20 year, they are required to make ‘payments on account’ to cover their anticipated bill for 2020/21.

These bills are predicted based on previous earnings, so those who earned a lot of money before will still face bills based on that income —even if they have earned nothing in the pandemic.

I may have to sell home to pay 

Louise Kenrick fears she may have to sell her house to pay her £12,000 tax bill.

The events worker previously earned around £70,000 a year but is now living off just £409.89 a month via Universal Credit. 

Louise, 50, completed her tax return in May and knew she would have to pay £12,000 by the end of this month – so set the money aside.

But after her six-month mortgage holiday came to an end she was still unable to work – forcing her to dip into savings to cover the £1,200 monthly repayments and other household bills. 

By next month she will have exhausted all of her savings.

Louise may be able to apply for a Bounce Back Loan, but does not want to saddle herself with more debt.

Even if she were able to pay her tax bill in monthly instalments, her benefits would not cover them — meaning she may have to sell the home she shares with her mother in Addlestone, Surrey.

She says: ‘I feel so frustrated that I am expected to contribute when I’ve had no help from the Government other than Universal Credit . . . It’s devastating to think I may have to sell my home.’

Payments on account are usually split into two bills: January and July. However, the Government allowed self-employed workers to defer payments on the summer balance, interest free, until the end of January. It now means these workers will need to make both payments.

These taxpayers can spread the bill over a year, and also apply to have their payment-on-account bill reduced to reflect loss of earnings. But if they underestimate earnings, they will be charged interest on the missing tax owed until it is paid.

Research from consumer lobby group Which? revealed one in four self-employed workers planned to delay their tax bill, and one in six said they did not know how they would pay their bill. 

Wedding cake maker Kate Tynan, 42, from Marple, Greater Manchester, made around £55,000 a year before the pandemic struck. 

But while she has made around £12,000 in the current financial year, she still faces a £2,000 tax bill after receiving around £11,000 in government support.

The mother-of-two says: ‘I have had to close my business temporarily to home-school my children. 

I’m going to do my best to pay it off in full, as it just seems wrong in principle that HMRC should charge interest on monthly payments in circumstances like these. I fear it will break some people.’

Nimesh Shah, of tax and advisory firm Blick Rothenberg, says the Government should automatically defer tax bills for the self-employed and charge no interest. 

Rising costs: Anyone who misses the deadline to file and pay their bill is automatically fined £100. The penalty will then rise by £10 a day if still not paid after three months

Rising costs: Anyone who misses the deadline to file and pay their bill is automatically fined £100. The penalty will then rise by £10 a day if still not paid after three months

He says: ‘Many of the self-employed are struggling more now than they were last July and the Chancellor needs to throw a much-needed lifeline.’

Alasdair Hutchison, from The Association of Independent Professionals and the Self-Employed, adds: ‘In these extreme and unprecedented circumstances, [the Government] should certainly not penalise late payment of taxes owed, which would only feel like another kick in the teeth after a difficult year.’

Jane Tully, of the Money Advice Trust, the charity that runs Business Debtline, called on the Government to do more to ensure struggling self-employed workers could afford repayment plans.

She says: ‘Our concern is that with many self-employed people likely to feel the impact of the outbreak for some time, the need to meet repayment deadlines as bills stack up could lead to a financial cliff edge for some further down the line.’

An HMRC spokesman says: ‘We want to encourage as many people as possible to file on time even if they can’t pay their tax straight away, but where a customer is unable to do so because of the impact of Covid-19 we will accept they have a reasonable excuse and cancel penalties, provided they manage to file as soon as possible after that.

‘Support is in place for those who may struggle to pay.’

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Scammers exploiting deadline 

Scammers are preying on people who are rushing to complete their tax returns by bombarding them with dodgy texts and emails.

HM Revenue & Customs (HMRC) sends thousands of messages to taxpayers to remind them of the January 31 deadline.

But anyone expecting a text or email could fall victim to a fake message sent by a fraudster.

HMRC has responded to more than 846,000 reports of suspicious activity in 2020. Almost 500,000 of these have involved bogus tax rebates.

Scammers dupe victims into handing over personal information, including bank details, which they will use to access their accounts, trick them into paying fictitious bills, or sell on their data to other criminals.

People should also beware of cold calls and websites that charge for government services – such as call connection sites – that are in fact free or charged at local call rates.

Rogue firms charge people for help getting ‘tax refunds’. To claim a refund for free, log in to your tax account at gov.uk/personal-tax-account.

The taxman has reported more than 15,500 malicious websites in the past 12 months.

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