With just over a week left until the end of January, many of us are thinking about our tax returns. But this year you have a bit more time to sort out your taxes because HMRC has extended the deadline.
In normal years you have until 31 January to file your tax return, but this year the taxman has pushed the date back to 28 February. However, that doesn’t mean you should wait. Not filing until February could still cost you money.
The new deadline for submitting your tax return
In recent weeks, HMRC has come under increasing pressure to extend the deadline for submitting 2020-2021 tax returns, because the Covid-19 pandemic has left many people struggling to complete their accounts. Accountancy firms have reported “widespread staff shortages caused by the spread of Omicron”, says Harry Brennan in The Daily Telegraph. “They said this was making it impossible for professionals to meet the cut off date, meaning taxpayers faced being unfairly punished for their accountants being off sick.”
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Missing the 31 January deadline usually results in an instant £100 fine, plus additional penalties that can leave you owing thousands more. However, HMRC has announced that you won’t face a late filing penalty this year if you submit your tax return online by 28 February.
The end of January also usually marks the deadline for paying any tax due, but this is being extended as well. You won’t face a late-payment penalty provided you pay your bill or set up a “time to pay” arrangement by 1 April. The latter is a new system HMRC brought in to recognise that people could struggle to pay their bills if the pandemic lockdowns affected their income. Under the “time to pay” rules anyone owing up to £30,000 can arrange to pay what they owe in instalments.
You own't be fined, but you’ll still pay interest
However, HMRC isn’t giving you a completely free ride. You won’t pay any penalties if you miss the 31 January deadline for paying your tax bill, but HMRC will start charging interest on anything you owe at a rate of 2.75% from 1 February. So if you can get your tax return filed and your bill paid by the usual end of January deadline, you should make sure you do so.
If you miss the new 28 February deadline, you will immediately be fined £100. After that, £10 a day is added up to a maximum of 90 days. Anyone who is more than six months late in filing will pay the higher of either £300 or 5% of the tax due. If you are a year late filing your tax return HMRC could fine you 100% of the bill.
Still, while you should try to file this month, the benefit of having until 28 February to file without fines is that you don’t need to panic if you’re struggling. Taking the time to get things right could mean you avoid a hefty unexpected bill. HMRC will fine you up to 30% of your bill for careless mistakes, rising to 100% if it thinks the error is deliberate.
Don’t forget Covid-19 loans
It’s particularly important to make sure you understand the rules surrounding any coronavirus-related government handouts you may have received. This is the first year that taxpayers will need to include any Covid-19 support, such as money from the self-employment income support scheme or business support grants. Any payments received through these schemes are subject to income tax, so you need to declare them on your tax return.
“The fact that the Covid-19 support payments are taxable has come as a shock to many and has resulted in unexpected tax bills,” says Michelle Denny-West, a tax partner at the accountancy firm Moore Kingston Smith in The Times.
There are new sections on the tax return where you will need to give details of any Covid-19 loans, grants or payments you received. The money received through these grants will be added to your overall income and taxed accordingly.
-
NFU Mutual and M&S among most trusted insurers as big brands beat smaller rivalsValue for money is a big concern for customers buying insurance, helping to send overall trust scores down to a four year low
-
Millions of shoppers can claim up to £70 compensation – do you qualify?Millions of shoppers will be able to claim their share of a £200 million settlement from Mastercard. We explain who's eligible, how the process will work, and when you could get the money
-
Is it cheaper to be a sole trader?It might be cheaper to be a sole trader due to changes to the tax system
-
Tax return deadline: act now to get your paper tax return in by 31 OctoberWe explain who needs to complete a self-assessment tax return, common mistakes to avoid - and what to do if you miss the deadline
-
11 reasons you need to register for self-assessment before 5 OctoberThere are lots of reasons why you may need to register for self-assessment. But you’ll need to act fast to meet the 5 October deadline
-
Don’t miss 31 July ‘payment on account’ tax deadlineAdvice Many self-employed people have a second tax payment deadline. And the stakes are higher this year, as HMRC recently increased the interest charge on late payments to 7.5%.
-
One in five taxpayers to pay higher rate of income tax by 2027News Frozen income tax thresholds mean considerably more middle-earners will have to start paying higher-rate tax. We explain what you can do to avoid the fiscal drag.
-
How to deal with self-assessment tax returns after a very trying yearAdvice The Covid-19 pandemic will complicate the self-assessment tax return process for 2019-20. What if you can’t pay? Ruth Jackson-Kirby has some advice.
-
The case for a flat taxBriefings Simplifying the tax system promises to cut incentives for evasion and avoidance, and boost work and entrepreneurship. Could it give post-Covid-19 Britain the lift it needs?
