The start of 2013 marks the final month in which to file your 2011/12 tax return. HM Revenue & Customs estimate 10.6 million people are required to submit a 2011/12 tax return. And taxpayers will need to file their returns electronically by 31st January 2013 in order to avoid being issued with an automatic filing penalty.
In this article, we take a closer look at the self assessment system and raise some important issues that tax payers should be aware of.
Paper Vs Online filing
HM Revenue & Customs (HMRC) are working hard to encourage taxpayers to file their tax returns online. Filing your tax return online offers a number of advantages:
- Instant calculation of your tax liability
- Faster response from HMRC
- An extension to the paper filing deadline of 31st October
If you were to submit a 2011/12 tax return in hard copy now that the paper tax return filing deadline of October 2012 has passed, HMRC would treat this as the late filing of a paper return. As a result, it is probable that HMRC would issue you with an automatic late filing penalty some time after January 2013.
Filing your first tax return
It’s never advisable to leave things until the eleventh hour and this is of course true of the self assessment system.
Firstly, filing your return ahead of the deadline means you will know what your tax liability sooner so you have more time to put aside for your tax bill.
Fact or fiction? "Filing your tax return early, means you must also pay your tax early".
Fiction! Any balance on your 2011/12 account must be paid on-or-before 31st January 2013. It is irrelevant if you file your return early.
Secondly, it takes some time to get registered with HMRC; both in terms of informing them that you need a tax return (because you’re newly self-employed for example) and also to obtain online access to HMRC’s website to file your return electronically. So it’s really important that you factor in some processing time.
Even if you have filed your return online before, make sure you know exactly where your HMRC login details are, because obtaining replacements from HMRC normally takes up to 10 days.
Furthermore, not rushing your tax return should reduce the risk of errors and mistakes being made, which could not only be costly, but could also mean that you end up having to re-do your return. Take your time and get it right in the first instance! And even if you’re using an accountant, they can benefit from having your books early because it gives them more time to ponder any tax planning opportunities available to you.
Late Filing Penalties
Up until a couple of years ago, an automatic penalty of £100 would be issued for a late tax return. However, this could be reduced- perhaps even down to nil- if you paid your tax by the due date or the tax liability was less than £100.
However, a new penalty regime now applies to late tax returns, which is as follows:
- An initial £100 penalty, which will apply even if there is less than £100 tax to pay or the tax due is paid on time
- After 3 months, additional daily penalties of £10 per day- up to a maximum of £900
- After 6 months, a further penalty of 5% of the tax due or £300; whichever is greater
- After 12 months, another 5% of the tax due or £300; whichever is greater. In serious cases, the penalty after 12 months can be up to 100% of the tax due
To illustrate how significant the new penalty regime is, a tax return that was filed a year late under the old regime would have been issued with penalties amounting to £200. A return filed a year late under the new penalty regime, could face penalties of at least £1,600- and this could escalate depending on the level of tax due.
Penalties are a waste of your hard-earned cash and you do not get tax relief for them either.
Firstly, please be aware that the penalties described above, are only for the late filing of a self assessment tax return. There are additional penalties for the late registration with HMRC and late payment of tax- the latter of which also incurs interest.
And secondly, if you’re self employed- whether you are a sole trader or a partner in a partnership- don’t forget to consider whether you need to register for Class 2 National Insurance contributions, a PAYE scheme, a CIS scheme or for VAT. Such registrations may be done simultaneously; however, you should ask yourself if you are obliged to register? And if you’re not; would you benefit from voluntary registration? Most late registrations trigger penalties from HMRC, so don’t deliberate for too long!
The UK has one of the longest tax codes in the world. So you may prefer to discuss your circumstances with an accountant, as they can ensure that you register for areas of tax only as-and-when you need to or when it becomes beneficial to. This should keep your administrative burden down and/ or optimise your tax position.
Help at hand
HMRC’s online filing system for tax returns calculates your tax liability for you. But needless to say, it will not check whether your figures are accurate or that you have claimed your full entitlement to expenses, reliefs and allowances.
But your local TaxAssist Accountant would be happy to take care of all your tax affairs for you; from registration with HMRC, to completion of the return, to calculation of your tax liability and the due dates.
So don’t get the New Year off to a bad start by filing your tax return late and facing a late filing penalty
By Jo Nockels
Last updated January 2013
Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.