Self-Employed Workers Face Steep Penalties as Crucial Tax Deadline Looms
Millions of self-employed individuals face a rapidly approaching tax deadline that could result in significant financial penalties if missed, warns tax insurance provider Qdos. The deadline of July 31st marks the due date for the second ‘payment on account,’ a system that splits annual tax bills into two installments for the self-employed.
How high can the fines go?
Those who fail to meet this deadline risk incurring hefty fines of up to 15% of the outstanding tax, along with an aggressive 7.75% interest rate on the fine itself. Additionally, late payments could trigger a potentially costly tax investigation by HMRC.
Qdos CEO, Seb Maley, emphasized the importance of timely payments, stating, “‘Payments on account’ provide flexibility for the self-employed to manage their tax affairs, but missing the deadline can lead to severe consequences.”
How are HMRC interest rates set?
- late payment interest, set at base rate plus 2.5%
- repayment interest, set at base rate minus 1%, with a lower limit of 0.5% (known as the ‘minimum floor’)
The late payment interest rate “encourages” prompt payment, says HMRC. It ensures fairness for those who pay their tax on time. HMRC says the repayment interest rate compensates taxpayers “fairly”, when they overpay, for loss of use of their money.
Glimmer of hope
While the situation may seem dire for those yet to pay, Maley offered a glimmer of hope. Taxpayers have a 30-day grace period after the deadline to contact HMRC, explain any difficulties, and arrange a suitable payment plan. This period allows for rectification without incurring fines or interest charges.
Maley concluded, “With the deadline approaching, it’s crucial that those yet to make their first ‘payment on account’ of the financial year do so on time. If you don’t, you run the risk of hefty fines and aggressive interest rates on the fine itself – and a potential HMRC enquiry into your tax affairs.
“The good news is that these scenarios are avoidable – you just have to pay on time. If your liability is difficult to calculate, or your income has changed and your bill is different from HMRC’s forecast, all is not lost.
“You’ve got up to 30 days after the deadline to contact HMRC, explain the issue and arrange a suitable payment scheme – you won’t be fined or charged any interest within that time.“