HMRC remove Self Assessment 5% late penalty – how self-employed taxpayers will benefit

Martin Lewis talks self-employed pension options with expert

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HMRC awarded more support to the struggling self-employed yesterday as they confirmed Self Assessment taxpayers, which may also include child benefit claimants and others, will not be charged the five percent late payment penalty if they pay their tax or set up a payment plan by April 1 2021. When a payment deadline is missed, interest is usually charged on the outstanding debt with a five percent penalty added on top of that if payments are still outstanding by March 3 but, given the continued impact of coronavirus, HMRC have been forced to take action.

Self Assessment tax payers have been given time to set up a payment plan should they need it and this will need to be done by midnight April 1 to prevent penalties.

The online Time to Pay facility provided allows taxpayers to spread the cost of their Self Assessment tax bill into monthly instalments until January 2022.

HMRC detailed more than 97,260 customers have set up a self-serve Time to Pay arrangement online, totalling more than £367 million.

Jim Harra, HMRC’s Chief Executive, commented on this: “Anyone worried about paying their tax can set up a payment plan to spread the cost into monthly instalments.

“Support is available at GOV.UK to help anyone struggling to meet their obligations.”

The Self-serve Time to Pay service allows taxpayers to set up a payment plan online to help them manage the cost of their tax bill up to £30,000.

If someone’s Self Assessment debts are more than £30,000, or they need longer to pay a debt in full, they cannot set up a Time to Pay arrangement online.

However, they may still be able to set up a Time to Pay arrangement by calling the Self Assessment Payment Helpline on 0300 200 3822.

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It should be noted that HMRC warned there is no actual change to the payment deadline and other obligations are not affected.

This means that:

  • The payment deadline remains January 31 and interest will be charged on late payment. The current rate of late payment interest is 2.6 percent
  • A five percent late payment penalty will be charged if tax remains outstanding, and a payment plan has not been set up, by midnight on April 1 2021. Further late payment penalties are charged at six and 12 months (August 2021 and February 2022 respectively), on tax outstanding where a payment plan has not been set up

This news was welcomed by many within the industry, with Dawn Register, the Head of Tax Dispute Resolution at BDO, commenting on the announcement: “This is an exceptional move from HMRC and a very welcome one as we are living in exceptionally difficult circumstances.

“This change will specifically support people struggling with their financial affairs, and offers additional and much-needed respite.

“While taxpayers who owe HMRC less than £30,000 can swiftly set up a Time to Pay arrangement with HMRC using the online facility, those who owe more will need to organise a bespoke payment plan by phoning HMRC and may need to demonstrate their financial hardship.

“This can be time consuming and with the plethora of other challenges many currently face, further latitude is a pragmatic move from HMRC.”

With all the changes HMRC have made, the following Self Assessment timeline is/was in place:

  • January 31 – Self Assessment deadline (paying and filing)
  • February 1 – interest accrues on any outstanding tax bills
  • February 28 – last date to file any late tax returns to avoid a late filing penalty
  • April 1– last date to pay any outstanding tax or make a Time to Pay arrangement, to avoid a late payment penalty
  • April 1 – last date to set up a self-serve Time to Pay arrangement online

Do you have a money dilemma which you’d like a financial expert’s opinion on? If you would like to ask one of our finance experts a question, please email your query to personal.finance@reachplc.com. 

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