Why HMRC’s rule change does not mean you should delay paying your tax

IF you pay your tax through a self-assessment tax form – and over 12 million of us do – the news that the Government is effectively suspending the late payment fee for those who miss the January 31 deadline this year might seem like a licence to dawdle. However, those who take advantage of the delay may end up with unexpected bills, so it makes sense to file if you can.

HMRC announced on January 6 that it was waiving late payment and late filing penalties for taxpayers, citing the pressures of COVID-19 on individuals and businesses.

“We recognise that Omicron is putting people under pressure, so we are giving millions of people more breathing space to manage their tax affairs,” says Financial Secretary to the Treasury, Lucy Frazer.

“Waiving late filing and payment penalties will help ease financial burdens and protect livelihoods as we navigate the months ahead.”

A sting in the tail

The decision by HMRC means that those who do not file their returns by January 31 will not face a £100 fine, while those who cannot pay their tax by the deadline will not receive a late payment penalty as long as they pay by April 1, or set up a special arrangement, known as a Time to Pay arrangement.

Normally a five per cent late payment penalty is applicable on any outstanding tax that is not paid by March, so these two concessions could save hard-pressed taxpayers a lot of money.

However, those who take advantage of them may not realise that they will still pay to delay. Any tax they owe will start to rack up interest on any tax that they owe from February 1 onwards, even if they haven’t filed a return.

With daily interest on anything you owe running at 2.75 per cent, and a five per cent surcharge if not paid by April 1 this could run to a considerable amount, so it is sensible to pay any tax you owe before HMRC begins to charge interest.

There are other reasons why you should ensure that you file on time, since even though there is no penalty this year, your tax return will still be deemed to be ‘late’ if you do not file by January 31. Those who submit a late tax return give HMRC a longer window to raise an enquiry into their tax affairs 1, while late filing may affect other claims and elections that are made via a tax return too.

All in all, meeting the January 31 deadline is still a sensible thing to do, unless coronavirus-related complications make it impossible.

Even if you worry that you won’t be able to pay your tax, setting up a Time to Pay arrangement for any tax owed under £30,000 means that you will avoid penalty charges in April if you still can’t pay, as well as giving you the peace of mind that you are moving towards a resolution when it comes to paying what you owe.

Starting your tax return

If you have not started your tax return yet, it makes sense to put some time aside to do it carefully before the January 31 deadline. You will need to ensure that you have certain personal details on hand to get into your online account, so the first thing to do is to make sure that you know your Unique Tax Reference number (UTR) and other login details. If you do not, it may take some time to get these from the government, especially with postal delays, so it is definitely worth checking as quickly as possible.

Other information that it is sensible to collect in advance includes your pension details, details of any charitable donations made in the tax year, a list of the investments you have made during the year and any expense records (such as mileage records if you have travelled for work). If you have worked from home in the 2020-21 tax year because of Covid, you will be able to claim some expenses for this too on the form, so make sure that you do not forget to do this.

A specialist accountant may be able to help you to produce an accurate form that ensures that you do not end up paying too much tax, so if you fear that you will not be able to understand the ins and outs of self assessment, it may be worth considering this.


1. https://www.gov.uk/hmrc-internal-manuals/enquiry-manual/em1506