Insights

More than 12 million people will be submitting their 2019/20 self-assessment tax return online by 31 January 2021. This includes the self-employed, people who are retired with an income and anyone who receives investment income or has made gains from investments.

Although there were reports of people filing their tax returns on Christmas Day and Boxing Day, millions of returns remain outstanding. Due to difficulties, delays and extra work created by COVID-19, up to 2.5 million taxpayers could end up missing the deadline and will face an automatic £100 penalty. This is according to data released by the Association of Chartered Certified Accountants (ACCA).

Despite this, the usual 31 January deadline continues to apply, and penalties will be enforced for late filing, although HMRC has promised to be understanding this year, because of the COVID-19 crisis.

Our advice is to do everything possible to ensure you can file your tax return on time. HMRC has however confirmed that difficulties that have been caused in dealing with COVID-19 will count as a valid excuse in the event that the 31 January submission deadline is missed, but the penalty will be triggered regardless. Once the penalty letter is issued, it can be appealed against and may be withdrawn depending on the circumstances.

HMRC has also said that people can postpone their tax payments which are due on 31 January and instead pay by instalments over a period of up to year. This will incur interest, but rates are low at 2.6% currently.

Importantly, if you wish to take advantage of HMRC’s Time to Pay scheme, this must be agreed in advance and you will still need to submit your tax return on time. Failure to do this will incur an automatic penalty.

HMRC has confirmed that difficulties that have been caused in dealing with COVID-19 will count as a valid excuse in the event that the 31 January submission deadline is missed, but the penalty will be triggered regardless. Once the penalty letter is issued, it can be appealed against.

Self-employed workers may be facing a surprise when they complete their tax returns, especially if they had a good year in 2018/19, because depending on their accounting year-end this may govern how much tax is payable on 31 January 2021, including tax due on account for the 2021/22 tax year. The payments on account are based on the previous year’s liability and won’t take into consideration subsequent reductions in income due to COVID-19. If you are facing a situation like this, it is possible to reduce your payments on account.

Things to remember when you complete your 2019/20 tax return

• There are ways to reduce your tax liability if you can claim relief for pension contributions and gift aid donations to charity;
• If you lost your job or your business has stopped trading, you can offset losses incurred against other income;
• You may be able to claim for additional allowances to cover the cost of working from home;
• Even if you can’t pay all your tax, file your tax return on time and agree a payment scheme in advance with HMRC;
• When agreeing a payment scheme, pay as much as you can initially to minimise interest and penalties;
• Provided your tax liability is lower than £30,000, a Time to Pay arrangement can be set up online 48 hours after your tax return is filed. If you owe more than this, a plan can be agreed directly with HMRC over the phone;
• You may be able to reduce your 2020/21 payments on account if you have a reduction in income. HMRC know how much the COVID-19 pandemic has affected people’s incomes and they have promised to be understanding.
• Ensure your tax return is accurate because careless errors can also result in penalties – of up to 30% of the total tax due.

If you need help with your tax return, please contact us via partners@rjp.co.uk.