Missed yesterday’s tax deadline? Contractors, you should act now

More than 12 million people were required to submit a Self-Assessment Tax Return (SATR) for the 2021/22 tax year by January 31st 2023, according to HMRC. However, with 2022 figures showing that as many as 45,000 people leave their tax return until deadline day -- yesterday, it’s worth being aware of the penalties for late filing.

And it’s worth being aware that if you did miss midnight’s cut-off, you unfortunately don’t have a great deal of inexpensive options, writes Joanne Thorne, technical compliance manager at SJD Accountancy

Last night’s self-assessment deadline: recap

I will come to what the best way forward for you is if you did miss the deadline. But first be aware that the SATR takes into account all of the income received from April 6th 2021 to April 5th 2022, including salary, dividends and interest, as well as pension contributions, charitable donations and any benefits claimed such as State Pension or Child Benefit.

Last year, more than two million people missed the January 31st tax return deadline, resulting in avoidable penalties and fines.

We find that the deadline tends to get missed by individuals including contractors because either they have not organised their tax affairs in time, or because they put off the task due to concerns that they may not be able to pay the tax owed to HMRC. 

What contractors will tell us contractor accountants us today

At this stage, those contractors who missed their obligations yesterday, typically tell us:

‘I’m just a single day late submitting my tax return’

The problem is even if you are just 24 hours late submitting your tax return – and actually if you submitted it at just one minute past midnight -- you will automatically be fined £100. This automatic late penalty applies even if you may happen to owe HMRC no tax whatsoever! For those with an online account, the fine will be added to it automatically. 

If that’s you, don’t panic there is some guidance coming up. But there are a number of other late-filing scenarios that may occur – three in fact:

1. More than three months late in filing

For anyone who has still not submitted their tax return within three months of the deadline (that’s by April 2023), they face having to pay HMRC an additional penalty of £10 per day for every day it remains late -- for a maximum of 90 days. 

2. Six months late in submitting the self-assessment 

If your return still isn’t submitted six months from now, further penalties will be charged at 5 per cent of the tax owed -- or a fine of £300 (whichever is greater). 

3. Missing the tax deadline by 12 months 

If you missed yesterday’s deadline and you’re sat reading this a full 12 months later, you’ll be required to pay a further penalty of 5 per cent of the tax owed at this 12 months juncture. 

Setting up a Time To Pay Agreement with HMRC 

Earlier, I mentioned that contractors often miss the deadline because they cannot afford to pay HMRC.

Fortunately, there is facility specifically for those who have not submitted their tax return because they are unable to afford what’s owed, and it’s called Time To Pay (TTP).

A TTP agreement allows people to repay their tax bill to HMRC in instalments, provided the applicant has: 

• Filed their latest tax return
• Owes less than £30,000
• Has applied for a TTP within 60 days of the payment deadline
• Is committed to paying off the debt within the next 12 months
• Does not have any other payment plans/debts with HMRC

Is there any way to get out of an HMRC penalty? 

HMRC is willing to waive fines for those who have a “reasonable” excuse – but this is at the discretion of HMRC.

A reasonable excuse could include a sudden family bereavement just before the deadline, an unexpected hospital stay; computer software failure, a fire, flood or theft that may have stopped you completing your tax return, or even possibly HMRC online service issues.

The Revenue will not accept excuses such as people not understanding how to use the online filing system as a reason for missing the deadline.

You must send your tax return or pay any outstanding tax as soon as possible once your reasonable excuse has been resolved.

For anyone wishing to appeal a penalty from HMRC, you can do so online or by filling out an SA370 form. 

What happens if I’ve worked through an umbrella company for some of the year?

Some contractors may have worked on assignments both through an umbrella company and through their limited company set-up, within the same tax year.

Remember, it’s all income that is included in a Self-Assessment Tax Return, so that the total tax liability can be arrived at. From here, any tax that has already been paid, such as that which has been deducted through the umbrella employment company would go towards reducing the final balance of the tax due. This is the same process as PAYE employees who have spent part of the year self-employed or worked through a limited company for the rest of the year.

The best way to avoid a penalty is to stay vigilant when it comes to tax planning, and to be proactive with your financial affairs. Looking ahead and being aware of any tax liabilities will ensure you have time to set the funds aside to pay for any upcoming tax bills.

What should I do if I’ve already incurred a £100 ‘late’ penalty from HMRC?

However, in the event that it is too late for you to avoid a penalty, because you didn’t file with HMRC or pay what you owe by midnight last night, you need to contact the Revenue.

This is the guidance I referred to earlier, and at the outset, and while it may sound less than ideal in an already stressful situation, contacting HMRC as soon as possible is imperative.

Contacting the Revenue quickly is even more imperative if you’re a self-assessor who missed the deadline due to mitigating circumstances, as you will need to appeal the £100 ‘automatic’ late penalty.

What should I actually say to HMRC on the phone, having missed the deadline?

Contractors contacting HMRC should offer to pay a lump sum upfront – if they are in a financial position to do so. Paying what you can afford will help reduce your overall bill and bring down the penalty charge. 

Once on the phone with HMRC, remember that setting up a Time To Pay agreement can be extremely helpful. And paying off a lump sum of the tax owed, as advised above, will increase the likelihood of HMRC approving you for a TTP arrangement.

Should you be a contractor who missed the deadline but are not in a position to pay any of your tax bill (if, for example, paying would mean you couldn’t afford essential household items), you should ask to set up a TTP agreement with HMRC in the next 60 days.

However finally contractors – please be mindful of what you can reasonably commit to when it comes to setting up a payment plan. It is better to be realistic about what can be paid, than be overambitious and ultimately unable to meet the agreed amounts and payment schedule.