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Late SA taxpayers will not be charged 5% surcharge

HMRC has confirmed that the initial 5% late payment penalty on self-assessed tax won’t be charged if the tax is paid, or a time to pay arrangement is agreed, by 1 April. 

19th Feb 2021
Editor AccountingWEB
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HMRC and money

As the impact of Covid-19 continues, taxpayers can dodge the first 5% surcharge as long as they pay their tax or set up a time to pay arrangement or a payment plan by 1 April 2021. 

In normal years, the interest kicks in from 1 February on amounts outstanding and a late payment penalty is also charged at 5% of any unpaid tax that is still outstanding on 3 March. 

HMRC’s 11th-hour decision to waive late filing penalties gave breathing space to the 1.8m taxpayers that didn’t make the 31 January payment deadline, but mounting interest still hung over them. 

Taxpayers now have until 28 February to file any late tax returns and to prevent being charged a late filing penalty of £100. They then have until 1 April to pay any outstanding tax or make a time to pay arrangement and sidestep a late payment penalty.  

SA timeline

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

Taxpayers urged to set up a payment plan

HMRC’s chief executive Jim Harra encouraged anyone worried about paying their tax to “set up a payment plan to spread the cost into monthly instalments”. He also directed taxpayers to gov.uk for support for “anyone struggling to meet their obligations”.

Taxpayers using the online time to pay facility will be able to spread the cost of their self assessment tax bill into monthly instalments until January 2022.

HMRC has revealed that more than 97,260 taxpayers have set up a self-serve time to pay arrangement online. It has calculated that these arrangements total more than £367m. 

Disparity in interest charged

While today’s announcement must come as a relief to the 1.8m that missed the deadline this year, there is a disparity in the interest HMRC pays out on overpayments and that charged on late paid taxes. 

As reported in the Financial Times, HMRC offers interest at 0.5% for people who are mistakenly overcharged, yet those late are hit with a 2.6% interest. The late payment interest rate was fixed based on the bank base rate plus 2.5% - a formula that dates back to when self assessment was first introduced in 1996-97.   

Profession reacts

Meanwhile, BDO's Dawn Register called it "an exceptional move" and a "much-needed respite" for people struggling with their financial affairs.

However, Register added, "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.”

The news was also welcomed on AccountingWEB’s Any Answers forum. “At least this now ties in with the previous guidance on Time to Pay arrangements being made 'within 60 days' after the normal deadline,” said AccountingWEB reader gainsborough. While AccountingWEB regular DJKL quipped, “Damn, I have paid mine.”

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