Insights

If you are panicking about getting your tax return in by the 31 January, you can breathe a small sigh of relief. HMRC has announced that there will be no late filing penalties imposed on taxpayers, just like the extension that was introduced in January 2021.

How to avoid a Self Assessment penalty

The penalty amnesty is available provided your 2020/21 tax return is filed online by no later than 28 February 2022. If you cannot pay your tax bill in full by this date, provided you pay the tax due or set up a payment plan by 1 April 2022, you can still avoid a late filing penalty.

Although the filing penalty is suspended for one month, interest is still payable with effect from 1 February 2022 if you have not paid your tax liability by that date. So in spite of the extra time, if it is possible to complete your tax return at the correct time in January, this is preferable, because it ensures that you know your tax liability payable on 31 January. According to HMRC, 6.5 million have already filed their returns.

Regardless of whether you can pay fully your tax bill or will need some extra time, you must still file your tax return by the 28 February deadline. Failure to do so will incur the automatic £100 penalty. For returns filed after 28 February, the usual late filing penalties (daily penalties from 3 months, 6 and 12 month penalties) will operate.

If you cannot fund all your tax bill at the end of February, there are still Time to Pay options that are available through HMRC to assist. This is an ongoing scheme for taxpayers, but it needs to be approved through HMRC and an arrangement can only be put in place for taxpayers who have filed their2020-21 tax return.

How does Time to Pay work?

Using the Time to Pay scheme, taxpayers can set up an online payment plan and spread the cost of their tax bill over 12 monthly instalments. The online facility will cover Self Assessment tax bills of up to £30,000 and anything over this amount must be approved individually by HMRC. If you wish to use Time to Pay and can pay your tax liability faster, this can also be scheduled online; 12 monthly payment instalments are typically the maximum available.

Although there is no automatic penalty for late filing if you miss the 31 January Self Assessment deadline this year, interest will still be charged. The current rate is 2.75% and this commences from 1 February on any amounts outstanding.

If you have not paid your tax bill or set up a payment plan by midnight on 1 April 2022 a 5% late payment penalty will be charged. Further late payment penalties will be charged at the usual 6 and 12 month points (August 2022 and February 2023 respectively) on any tax outstanding where a payment plan has not been set up.

Special circumstances for Self Assessment

Note if you need to file a SA700 or SA970 return, no late filing penalties will be charged for returns received in February. This is because these returns can only be filed on paper.

If you need to file a SA800 or SA900 return, these will also not incur a late filing penalty, provided they are filed online by the end of February.

Self-employed taxpayers who need to claim contributory benefits soon after 31 January 2022 should ensure their annual Class 2 National Insurance contributions (NICs) are paid on time, to avoid claims being affected. Class 2 NICs are included in the 2020 to 2021 balancing payment that is due to be paid by 31 January 2022. Benefit entitlements may be affected for those who were not able to pay their balancing payment by 31 January 2022, and or have agreed a Time to Pay arrangement to pay off the balancing payment and other Self Assessment tax liabilities through instalments.

If you have any concerns about filing your tax return and need some help, please get in touch via partners@rjp.co.uk.