Self-employed individuals owed £1.6bn in late tax payments to HMRC last year, with the figure expected to rise even further once more self-assessment returns for 2017/18 have been submitted.
The value of tax owed by those who have missed the payment deadline has been rising for the last three years, according to UHY Hacker Young. The figure rose 4% to £1.83bn in 2016/17 (the latest full year available) from £1.76bn in 2015/16 and £1.65bn the year before.
The research shows that taxpayers are finding it increasingly difficult to pay their tax bills on time as the UK economy continues to struggle and individuals are squeezed. Most late-paying taxpayers want to pay their bills on time, but some often do not have the available cash to do so.
The rise could also be linked to the rising number of self-employed people in the UK, many of whom are filing self-assessment returns for the first time. There was a record high of 4.93 million self-employed people in the UK in March 2019.
HMRC’s systems can be hard to understand for ‘new’ users. For example, many are unaware that they must register for a Unique Taxpayer Reference (UTR) number to be able to complete self-assessment returns. Even once you have registered, it can sometimes take months to receive a UTR, which can contribute to a late tax payment.
The issue could be further compounded by the fact that fines are levied against those who pay late. An individual who is 30 days late can face a fine of 5% of all tax owed. If they are six months late in paying, they receive another penalty of 5% of the tax owed at that date.
The data could suggest that HMRC is becoming less sympathetic to late-paying taxpayers. Of the total amount owed in late tax payments (before adjustments or cancellations of liabilities), just 22% (£516m of £2.35bn) of the outstanding tax was cancelled by HMRC. This compares to 23% the previous year (£523m of £2.29bn).
Neela Chauhan, a partner at UHY Hacker Young’s London office, said: “The vast majority of taxpayers are fully intending to pay on time. However, they face a lose-lose scenario when they find it hard to do so. They could either choose to pay the full amount on time, risking the long-term health of their business or career because of the hit on their cashflow, or accept a potentially hefty fine further down the line.
“As the number of self-employed people continues to rise, the money owed through late payments is also likely to mount.
“Many commentators have suggested that HMRC is becoming increasingly aggressive when chasing down debts. Taxpayers would like to see the Revenue be more flexible and give them a bit of leeway when managing payments.”