Don’t get caught out by Self Assessment fines
The 31st January is normally the date for the biggest tax payment of the year, as not only will individuals have to pay a balance of tax owing for the year ended 5th April 2014 but also have to make the first of their two payments on account for 2014/15.
Interest is charged on any tax paid late, currently running at 3%, so the only way to avoid this is by paying the correct amount of tax on time. With this in mind it is worth considering your payments on account for 2014/15. Payments on account are based on the previous year’s tax liability, so if you know, with absolute certainty, what your taxable income is likely to be for the year ending 5th April 2015, then it is possible to apply to make reduced payments on account. This can be done via the tax return itself or the Self Assessment online system. A word of caution, however, that should the eventual tax be more than the reduced payments on account, then interest will be charged from the original due dates.
For those that filed their tax returns by 31st October and HMRC calculated the tax, check that the Revenue’s figures match what you were expecting, as HMRC do not always get it right and you might also uncover a mistake on your return.
Penalties
Where tax remains unpaid after 2nd March, then not only will interest be payable but also a 5% penalty (previously called a surcharge), with a further 5% if the tax is still not paid by 31st July. The obvious way to avoid the fine is to pay on time but for those that do not have the funds to do so then they should not just sit on their hands as there is still a way to get out of paying the penalty.
Firstly, contractors who find themselves temporarily short of personal wealth could always look to their own companies to either pay a dividend or provide a short-term loan. Where employment related loans do not exceed £10,000 in a tax year, then they are not taxable. However, the loan must be repaid before 9 months after the end of accounting period in which the loan is made otherwise the company will incur a 25% tax charge.
If, however, the company is also strapped for cash then make use of HMRC’s business payment support service (BPSS) to make arrangements for time to pay, by contacting them on 0300 200 3835. The service is available 8 am – 8 pm, Monday – Friday, and 8 am – 4 pm, Saturday and Sunday. You can’t just phone and ask for time to pay as HMRC will quiz you as to why you are struggling to pay your tax bill, how much you can afford and when, and how long it will take you to clear the debt.
Every payment that you actually arrange to pay late will escape a penalty but only if you pay within the time agreed with HMRC.
BPSS isn’t just for Self Assessment as it also covers PAYE, NIC, VAT and CIS deductions too. It is necessary therefore to take these into account as it would be futile to organise time to pay your personal tax liability if any of these other taxes were left unpaid.
Where unexpected and unforeseen problems occur that are beyond your control and prevent you from paying on time, then it may still be possible to avoid a penalty provided you have a ‘reasonable excuse’. For example, a payment that is dishonoured solely because of an error by the bank is a reasonable excuse. However a taxpayer would be expected to have acted promptly in sending a replacement on becoming aware of the error. A shortage of funds is not a valid excuse.
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