Self-assessment and January 

Self-assessment and January 

Contributed by Chris Thorpe LLB (Hons) ATT CTA (Fellow) TEP 

A critical day in the calendar each year for those working in personal tax is 31 January, when self-assessment tax returns are due, along with tax payments. Many clients will have left it to the last minute to get their papers to agents, causing many a midnight oil to be burned. Despite best efforts, however, some will miss the submission and the necessary payments. What happens then? What other options might there be? 

Penalties 

There are fixed rate penalties for: late filing of returns, late payment of tax, failure to notify in the first place and for subsequent errors in the returns. 

As soon as the tax return fails to land with HMRC on 31 January, a £100 penalty is levied; if the return remains unsubmitted after a further three months there is a £10 per day penalty for the next 90 days; after the return is six months late a further penalty of £300 or 5% of outstanding tax (whichever is higher); the same again applies after 12 months’ delay. 

There are separate penalties for failing to pay under self-assessment; once 30 days’ non-payment has elapsed after 31 January, a 5% penalty is charged; after six months’ delay a further 5% is charged, with the same again after 12 months. An important addition to bear in mind with late payment is that as well as penalties, interest will be charged until the debt is paid. The current annual interest rate (from 26 November 2024) for late income tax and capital gains tax is 7.25%. 

Once Making Tax Digital is in place for income tax in 2026–27, a new point-based penalty system will be in place – as it has been for VAT since January 2023. 

Behaviour-based penalties 

The penalties imposed for failure to notify of a liability are based upon the taxpayer’s behaviour and a percentage of the liability; the rate will depend whether the failure was deliberate and prompted (by HMRC) or not. For a non-deliberate failure, the penalty will be up to 30%, though the rate could be reduced to 0% if disclosed within 12 months; thereafter a 10% rate is the lowest available. If it requires an HMRC prompt for a disclosure to be forthcoming, a 0% rate is still possible if made within 12 months, otherwise 20% is the lowest rate. Deliberate failures can attract a 70% rate; an unprompted disclosure can reduce that to as low as 20%, but if prompted, the minimum is 35%. A deliberate and concealed failure can mean a 100% penalty, reduced to 30% if unprompted or 50% if prompted. 

A similar regime is in place for deliberate errors made in tax returns – the percentage being against potential loss revenue. ‘Careless’ errors will attract a 30% rate, but this can be reduced to 0% for unpromoted disclosures; a careless error can be suspended by HMRC for up to two years, but those which happen despite ‘reasonable care’ being taken will not be met with penalties at all. 

Reasonable excuse 

One aspect common to all penalties is that a ‘reasonable excuse’, if accepted by HMRC, will remove the penalty completely. If the taxpayer has done all they can to fulfil their obligations and the failure was due to something beyond their control, HMRC have the discretion to waive the penalty. In addition to a reasonable excuse claim, a taxpayer can request a ‘special reduction’ for ‘uncommon or exceptional’ circumstances (the inability to pay being express excluded from this definition); HMRC are supposed to always consider the possible application of a special reduction, with their failure to do risking the overturning of their decision by the Tribunals. 

Capital gains tax 

It mustn’t be forgotten that as well as income tax, CGT is also due for payment on 31 January – in one go. If total disposal proceeds are ascertainable and to be received in instalments over a period of time between 18 months and eight years, with HMRC’s permission (and not before!), the CGT may be paid over time under  TCGA 1992, s. 280 . If HMRC agree to this installation plan, then usually half of the disposal proceeds should be paid to HMRC when received until the liability is settled. Interest will only be charged if the installation payments are late. 

Payments on account 

For the following year’s income tax and Class 4 National Insurance (not Class 2 or CGT) liability, unless last year’s tax bill was below £1,000 (or more than 80% of it was settled at source) HMRC will want part of that liability paid on 31 January alongside the current year’s balancing payment. The remainder of that following tax year’s payment on account in due on the 31 July. 

For those entering self-assessment for the first time in particular, this can be a strain on cashflow – having to pay a year and a half’s tax bill by 31 January. However, it is possible to reduce one’s payment on account for the following year when completing a tax return; with a stated reason, such payments can be reduced to nil or to any other figure, the totals of which should match the projected tax liability of the following year. This can help reduce the cashflow now, but if the projected liability ends up being higher than expected, overly-reduced payments on account will attract interest charges.