The cost of a late return
Over10 million tax returns were sent out last year for the tax year which ended on April 5, 2012 and these were due in by January 31 this year. If you missed this deadline, then you would have already been hit with a £100 fine.
Those who failed to file their return three months after this deadline will have racked up additional daily penalties of £10 per day, up to an eye-watering maximum of £900. After six months, so on July 31, if you still haven’t filed your 2011/12 tax return, you’ll have to pay a further penalty of 5% of the tax due or £300, whichever is greater. After 12 months, you’ll face yet another 5% or £300. These penalties apply even if you don’t owe any tax at all.
Even if you did manage to get your return in by January 31, there are still penalties to pay for not paying any tax you owe on time.
Here's all you need to know about payments on account and the cost of missing the July 31 deadline.
Who needs to pay tax by July 31?
Anyone whose January tax return shows they owe the taxman more than £1,000 will have to make a payment by July 31, in addition to any contribution they have made in January. The only exception is if over 80% of the tax was taken at source, for example, through PAYE.
What is payment on account?
If you pay your tax in two yearly installments, the July instalment is a 'payment on account' for the current financial year.
As HMRC bank on the fact you will earn roughly the same amount each year, you will pay the same amount in tax each year, and the payment for July will usually be half of the current amount owed.
For example, if your 2012/13 tax return shows that you owe £4,500 for the year ending April 5, 2013 and none has been collected at source, then you'll have to pay £2,250 on January 31, 2013 and the same again on July 31, 2013.
If nothing changes then you'll simply pay the same amount every January and July. If you overpay, you'll be given a rebate. If you underpay the shortfall will have to be made up in the following January, meaning your payment on account will also increase.
How can I make the payment?
You can pay your tax bill online using a debit card (or credit card subject to a 1.4% fee) or set up a direct debit from your account every six months so you don't have to think about it.
You can also pay by post, over the counter at the Post Office or by going into your own bank so long as you take your payslip from HMRC. In any case, there's little room for excuses when it comes to not paying.
To make a payment you will need your Self Assessment reference number, also known as your Unique Taxpayer Reference (UTR) number, which you will find on your payslip or your online HMRC account. For more on ways to pay, click here.
Remember, it's YOUR responsibility to make sure your payments reach HMRC on time - and this means you should allow three working days for any payment to be processed - even if it's made online. If your tax return and your payments is late, you'll have to pay a penalty.
What are the penalties if my tax payment is late?
Interest is charged on any tax you owe at a rate of 3%, plus you will have to pay a 5% penalty of the amount of tax owed if payment hasn’t been made within 30 days of the due date. Additional 5% penalties apply after 6 and 12 months.
What if I can't afford my payments?
In an ideal world you'll have squirrelled away the money over the course of the year so the payment doesn't come as a massive hit. But if you find yourself short, don't ignore the problem, make sure you get in touch with HMRC straight away.
However, there are a number of factors that HMRC considers 'reasonable excuses' for not filing your return, which can be found here along with the relevant form you'll need to fill in.
If you explain the problem to HMRC you may be able to avoid the penalties and even work out a payment plan to help spread the costs, but hoping it will go away will only make the problem even worse.
Just one more thing...
If you're eligible for tax credits then you also have until July 31 to renew your claim and inform HMRC of any changes in circumstances, such as altered working hours, childcare costs, pay or if you're living with a partner.
Getting this sorted as soon as possible means that payments can be checked to make sure you're not getting too much or too little, either way will see you out of pocket.
You can renew by calling the Tax Credits helpline on 0345 300 3900.
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