Martin Lewis discusses late filing fee for tax self-assessment
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As the Self Assessment deadline approaches, taxpayers are being given a stark warning: pay promptly or face the consequences. From today, the interest rate charged by HMRC for late tax payment of income tax will rise to six percent.
This is more than double the rate charged at the same time last year, and the highest level in more than 14 years.
The deadline to submit a Self Assessment tax return online rolls around every January 31.
However, with the festive season proceeding this, many people will often forget to get their tax affairs in order until the last minute.
The mad dash to file taxes will be a shared experience among millions of Britons.
But for those looking to avoid a punitive interest rate on unpaid tax, on top of taxes which may already be a burden, filing promptly is key.
Dawn Register, head of tax dispute resolution at accountancy firm BDO, said: “Taxpayers who file and pay late this year may be in for a shock.
“In addition to late filing penalties and late payment penalties, which can quickly add up, the interest rate applied by HMRC for late payment is at its highest level in almost a decade and a half.”
What kind of penalties can taxpayers expect?
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Those who fail to submit a return by the filing date will face an automatic penalty of £100.
If the return is more than three months late, HMRC can impose a £10 daily penalty.
When the delay reaches six, or even 12 months, higher penalties can also be levied.
In addition to late filing penalties, HMRC can also impose late payment penalties.
These can be equal to five percent of the unpaid tax 30 days after the payment was due.
A further five percent of unpaid tax can apply six months after the payment was originally due.
An additional five percent of unpaid tax can apply 12 months after the payment was originally due.
Interest rates on late payment of income tax
Late payment interest is set at base rate plus 2.5 percent, meaning from today, the rate rises to six percent.
BDO states the last time the rate rose to above this level was in November 2008 – when the rate reached 6.5 percent.
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For example, a taxpayer who files their return and owes £30,000 on January 31, 2023, who does not pay the tax and late payment penalty until June 1, 2023, will find their total bill has risen to just over £32,100.
They will be paying just under £300 more interest to HMRC than the same tax debt paid late in 2022 would have cost them.
Those who know they are going to struggle to pay on time are urged to contact HMRC to establish a formal Time to Pay arrangement.
Ms Register added: “This will mean as long as you stick to the instalment payments agreed, the penalty won’t be charged. However, interest will be applied.
“The current high interest rate for late payment can also apply to valid penalties not paid on time.
“So this should provide some extra motivation for people to file and pay their tax promptly this year.”
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