HMRC has announced it will waive penalties for late 2019-20 tax returns until 28 February – but the deadline to pay the tax you owe is still 31 January. 

This might come as a relief if you're one of the 3.2million people who haven't yet filed their self-assessment tax return, but note that HMRC says it is still encouraging anyone who is able to file their tax return by 31 January to still do so. 

Here, Which? reveals what traders need to know about tax returns this year, to help with the tax return process.

1. The deadline to pay your tax bill hasn't changed

While HMRC says it will waive penalties for tax returns submitted after 31 January for an extra month, the deadline to pay the tax you owe is still 31 January. 

Missing this payment deadline means you’ll be charged 2.6% interest on what you owe from the date the payment was due. Many people won’t know what tax they owe until they file their tax return - which is why it's still important to submit your return as soon as possible. 

Charges for unpaid tax will increase over time, and may be charged in addition to late filing fees if you have missed both deadlines. 

Penalties for unpaid tax are charged like this:

  • 2.6% interest from the first day it’s overdue
  • After 30 days: a charge equal to 5% of the tax due
  • After six months: another 5% charge
  • After 12 months: a further 5% charge.

If you're struggling to pay your tax bill on time, see point 4 below to find out about available help.

2. You'll owe more tax if you deferred the July 2020 payment on account

As part of the government’s financial help measures for those whose income has been affected by COVID-19, it allowed self-employed workers who pay tax via payments on account to defer the payment due on 31 July 2020. 

While this move may have given some much-needed relief to those who would have struggled to pay the bill, it does mean that they’ll be facing a larger bill now. 

That’s because those who pay tax by payment on account pay for their upcoming tax bill in advance in two chunks, with a possible third ‘balancing payment’ if it turns out they haven’t paid quite enough. What you pay is based on your tax return from the previous year. 

So, on 31 January 2020 you’d have made your first payment on account for your 2019-20 tax bill, the second would usually be due on 31 July 2020, and then once you’d submitted your 2019-20 tax return you may have to either pay a little more by 31 January 2021 or receive a tax refund, depending on whether you’ve paid too much or too little tax.

However, anyone who deferred would now have to pay the July payment on account for 2019-20, possibly in addition to a balancing payment, and the first 2020-21 January payment on account - all by 31 January.  

Our guide to self-employed tax returns has more on information on this.

3. If you submit your tax return after 28 February 2021, you'll face penalties

According to HMRC's latest guidelines, those who file their tax return before midnight on 28 February 2021 won't face any late charges - but the tax authority's usual penalties will kick in if your tax return reaches them from 1 March onwards.

The charges for late tax returns begin from the first day:

  • One day late: £100 fine
  • Up to three months late: £10 for each day (capped at 90 days), plus initial £100 fine
  • Up to six months late: £300 or 5% of tax due (whichever is bigger), plus penalties above
  • 12 months late: another £300 or 5% of tax due (whichever is bigger), plus penalties above.

If you have a genuine excuse as to why you couldn't file your tax return on time - despite the extra time to do so - you may appeal the late fines. HMRC will accept 'reasonable excuses', which are assessed on a case-by-case basis. 

Some of the examples HMRC gives as reasonable excuses include the recent death of a partner, an unexpected hospital day, computer issues and fire which prevented you from completing your tax return. It says coronavirus-related excuses on a similar scale will be considered.

4. Help is available if you can't pay your tax bill

The government has extended the eligibility criteria for its Time to Pay arrangement, which could help anyone who cannot pay the tax they owe by 31 January 2021. 

This works by spreading out what you owe over 12 months, but your 2019-20 tax must be paid in full by 31 January 2022 (when the 2020-21 tax bill is also due). Note that you will still be charged interest of 2.6% on any tax that is outstanding from 1 February 2021. 

It's possible to set up this arrangement online, but note that the following must apply:

  • Owe less than £30,000 in tax
  • Be signed up to and have a Government Gateway ID
  • Have filed your 2019-20 tax return and know how much tax you owe
  • Not have any other outstanding tax returns or owe other money to HMRC.

If you owe more than £30,000, or know that you'll likely need more than 12 months to pay the tax you owe, you might be able to arrange a different instalment plan. You can discuss your options with the Payment Support Service on 0300 200 3835.

Find out more in our story about coronavirus help for the self-employed

5. Forgetting your expenses could cost you

Self-employed workers are taxed on their annual profit. If you claim expenses for items or services that are necessary to carry out your job, you're able to deduct the cost of certain purchases which will in turn reduce the amount of profit and, in turn, your tax bill.

This could include things like tools for carrying out jobs, printer ink and paper for printing invoices - along with some more specific expenses you might not be aware of.

For instance, if you have business premises, you’ll be able to claim the costs of keeping it running - this includes outgoings for heating, lighting, cleaning, water, rent, business rates and general maintenance.

However, you can't claim expenses for the initial costs of buying the building, or for any alterations or improvements. This kind of spending could qualify for the annual investment allowance or capital allowances.

If you’re an employer, you can claim employee-related expenses, such as:

  • employees' wages and redundancy payments
  • Employers National Insurance contributions (NICs)
  • employees' insurance and pension benefits
  • employees' childcare provisions
  • training costs

You can't claim for the same expenses relating to yourself - that includes your own NICs, income tax, pension contributions and life insurance.

Find out more in our guide to self-employed tax allowable expenses.

6. Don't file your tax return in a rush

Don’t make tax any more taxing than it needs to be - it’s best to leave yourself plenty of time to get your tax return done so you’re not in a rush. 

We’ve found it can be helpful to get all of your documentation together before you start - that includes things like your UTR number, National Insurance number, bank statements, invoices, receipts, bills and anything else you might need to complete your tax return. 

It’s important to make sure your tax return is accurate, as HMRC may issue a fine if it doesn’t think you’ve taken ‘reasonable care’ over it - with some hefty charges if it thinks you have deliberately underestimated the amount of tax you owe. 

  • No penalty: you’ve taken reasonable care to fill in your tax return correctly
  • Charge of 0%-30% of tax owing: you’ve been careless
  • Charge of 20%-70% of tax owing: you’ve deliberately underestimated your tax
  • Charge of 30%-100% of tax owing: you’ve deliberately understated your tax and have tried to conceal it.

If there are any figures you’re not sure about, don’t delay submitting your return. There’s a box you can tick to indicate to HMRC that the figures you’re submitting are estimates, and you can go in and change them at a later date. 

Our guide on how to fill in a self-assessment tax return might be able to help you.

7. Consider using the Which? tax calculator

You could consider trying the Which? Tax calculator for your tax return. The online tool is easy to use and totally jargon-free, allows you to tot up your tax bill and offers tips that could save you money on allowances and expenses that you might have missed. 

What’s more, if you're a Which? Trusted Trader, you can submit your return directly to HMRC for the discounted Which? members price of £10 - it costs £46 for non-members.

Find out more about becoming a Which? Trusted Trader.

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