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Taxpayers who don’t file their tax returns on time will be fined and it could get a lot worse

Almost half the population still have to file their tax returns

Almost half the population still have to file their tax returns and those that fail to do so by the end of the month will be subject to a fixed penalty and it could get a lot worse depending on how long people wait to file and pay what they owe.

Nimesh Shah, a partner at Blick Rothenberg said: “Some 5.4 million people still have to file their tax returns according to latest figures from HM Revenue & Customs (HMRC), and as around 11 million individuals need to file a 2018/19 tax return it means that almost half of the population have yet to do so.”

He added: “The problem is that fines and penalties can quickly add up. If you don’t file your tax return by 31 January 2020, HMRC will issue an automatic fixed penalty of £100.

“If the tax return is three months late, HMRC will start charging daily penalties of £10 per day and these run for a period of up to 90 days, so up to £900 in total.

“After 6 months, HMRC will charge a penalty of 5% of the person’s tax or £300 – whichever is higher. Therefore, within 6 months, someone could be facing total penalties of at least £1,300. The penalties start to become even more serious if the tax return is more than 12 months late and can be as much as 200% of the tax.”

If the tax return is three months late, HMRC will start charging daily penalties of £10 per day and these run for a period of up to 90 days

Nimesh said: “HMRC will charge these penalties even if the person doesn’t actually have any tax to pay so it is imperative that people get their tax affairs up to date and make the returns in a timely fashion.”

He added: “You also need to pay any tax you owe for 2018/19 by 31 January 2020, together with the first payment on account for the 2019/20 tax year, if this is relevant for you.

“If a person doesn’t pay their tax on time, HMRC will charge daily interest at 3.25%. Furthermore, if you don’t pay the tax by 1 March, HMRC will charge a penalty of 5% of the tax and further 5% penalties are levied if the tax is unpaid at six months and 12 months.”

Nimesh said: “If someone doesn’t file their tax return until 1 June and they calculate they have tax to pay of £1,000, they could be facing an additional bill of penalties and interest of just less than £500, which is nearly as half as much of the tax owed in the first place.

“After the festive break, most will dread the thought of having to complete their tax return and make their tax payment by the end of the month. However, it’s best to make a start as soon as possible, and if you have any questions or problems, you still have time to contact HMRC or an accountant for assistance.”

Below Nimesh gives some tips that should make the process of filing your tax return easier and maybe even manage some of the post-festive blues (especially as you could be entitled to an unexpected tax repayment):

  • Don’t forget to declare child benefit payments if your income is over £50,000.
  • If you are renting out a property, claim all revenue expenses associated with the letting including letting agent fees, ground rent, replacement of furniture and appliances but not capital expenditure such as improvements to the property.
  • Again, on renting out a residential property, you need to remember that 50% of mortgage interest is only available for full deduction, so it’s important to ensure that the restriction is reported correctly.
  • If you are letting out a room in your own home, is it more tax efficient for you to claim the annual £7,500 (£3,750 for properties owned jointly) rent-a-room scheme allowance?
  • Do you need to claim higher rate tax relief in respect of your pension payments? Where your pension contributions are paid net of basic rate tax, remember that HMRC ask for the gross figure of your pension payments not the amount you pay.
  • If your income exceeds £150,000, you need to consider the restriction to your pensions annual allowance.
  • Include all the Gift Aid donations you have made during the tax year to claim any higher rate tax relief. You can also include Gift Aid donations you have made after the end of the tax year but before you file your return and carry these back. (Remember, you can’t claim for relief for these donations again next year so keep a record of what you have carried back).
  • Where you have a P11D form from your employer, include all the figures on your tax return and ensure you include a corresponding claim for relief in respect of any business expenses on the P11D.
  • If you use your car for business trips and your employer pays you less than the HMRC maximum approved mileage rate (45p for the first 10,000 miles and 25p per mile above this) you can claim the excess.
  • If you are a member of a professional body required for your employment, you can include the cost of the subscription as an allowable deduction.
  • If you made capital gains of less than £11,700 in the year you only need to include these on the return if your total proceeds exceeded £46,800.
  • If you have disposed of a residential property, report the disposal correctly to ensure the correct rate of tax is charged (i.e. up to 28% rather than 20% for gains on most other assets).
  • Do you have any capital losses from earlier years to carry forward and use? You need to “claim” these capital losses. Many people assume that if only losses are realised they don’t need to be reported on the return, but this is not the case and capital losses must be claimed within 4 years to remain available.
  • Don’t forget to include foreign income and capital gains. Relatively new rules mean that failure to properly declare foreign sources can be a criminal offence.
  • Don’t forget to include your state pension figures – although the state pension is paid gross, it is still taxable and needs to be included on your tax return.
  • Don’t forget National Insurance – Class 4 can be the forgotten element of tax bills for self-employed individuals. Also, individuals with two employments may overpay Class 1 and HMRC can overlook notifying you of NIC overpayments.
  • If you are due a repayment, make sure you claim a refund and include details of the UK bank account you want the refund to be paid into as refunds are made more quickly this way, rather than by asking for a cheque.

For more information, please contact Nimesh Shah.