Anyone who’s self-employed will know the gut-wrenching feeling come self-assessment tax payment time.
How much will you owe this time? Where will you find the money if it’s too much? Is there a chance a rebate could be on the way? What if you forget to pay in time?
Let’s be honest – it’s not the most enjoyable time of the year, and new figures from HMRC offer a startling insight into just how far behind some people are with their payments.
According to research, self-employed workers in the UK owe HMRC a staggering £1.6bn in late tax payments.
A worrying trend
This isn’t new. Although the figure above relates to late payments for 2017/18 tax bills, the amount of tax owed by people who missed the payment deadline has continued to increase every year for the last three years.
In 2014/15, the figure stood at £1.6bn, before rising to £1.76bn the year after. By 2016/17, it had increased to a whopping £1.83bn.
As more tax returns are submitted, that figure for this year is expected to continue rising and surpass the £1.83bn figure from last year.
How (and why) is this happening?
People are increasingly missing the tax payment deadline of 31st January – despite a record number of tax returns being submitted this year.
But therein lies the problem; with more people submitting self-assessment returns, the number of late payers is almost certainly likely to rise in tandem. Whether this is as a result of increased independent working or redundancies forcing people into self-employment is open for debate, but there’s also the argument that first timers may not realise how the system works.
Figures from the Office for National Statistics (ONS) suggest that the number of people in self-employed work has increased from 3.3 million in 2001 to 4.93 million this March.
How many of those people feel like they’re in the dark about HMRC payments?
Are you one of them? You’re not alone, if so.
“We want people to pay on time rather than receive penalties”
When broken down, the self-assessment process is relatively straightforward, but it certainly benefits from the helping hand of a knowledgeable accountant.
Despite this, many first time self-employed workers decide to go it alone. Unfortunately, their lack of understanding of the process may lead to inadvertently late or missed payments.
For instance, it’s not widely known that tax on first-year profits is paid at the same time as the first payment on account. The latter is another grey area for many, and relates to the estimated tax owed on predicted second-year profits.
The reality of two HMRC payments that need to be made each year (one in January, the other in July if a payment on account is required) is another area where late payments are an easy mistake to make.
Despite this, HMRC wants to help those concerned. “We want people to pay on time rather than receive penalties,” said a spokesperson from the Revenue. “If customers are unable to pay on time, they may avoid penalties by contacting us as soon as possible and we can discuss whether it might be possible to set up a payment plan.”
How to pay (it has changed)
There are a number of ways to pay your self-assessment tax bill, but HMRC has made some recent changes that are important to bear in mind.
In January last year, the Revenue banned people from using their personal credit cards to pay their annual tax bills. However, personal debit cards can still be used come self-assessment time, as can corporate or company credit cards.
Worried about late payments?
If you’re new to the world of self-assessment or think you might have difficulty meeting the payment deadline next year, our team can help.
Just get in touch with your self-assessment related queries and we’ll do our best to point you in the right direction.