All sole traders and self-assessors have heard of the tax deadline – the 31st January, by which the dreaded tax form needs to be filled in and submitted to HMRC and then paid for.
But what happens if you miss the deadline? We take a closer look.
What is the Tax Deadline?
There are actually two deadlines for self-assessment tax returns. If you are submitting a paper return, then you need to have this done by 31st October and send it off to HMRC. If you are doing your return digitally using HMRC portal, the deadline is midnight on 31st January.
Whichever method you choose, by the 31st January you need to have paid the tax which is due.
What Happens If My Payment is Late?
Once the deadline has passed, you will be liable to fines depending on how late you are. 1 day over the 31st January will incur an automatic £100 fine. This applies even if you have no tax to pay but have failed to put in your return.
If you have put in your return and you are unable to meet your financial obligations or there is likely to be a delay in payment, you need to contact HMRC as a matter of urgency. They are normally reasonably accommodating when it comes to giving sole traders extra time as long as there is a good excuse.
If you are 3 months late, additional fines start to come into play. You will be charged £10 a day up to a maximum of £900. When you get to 6 months late, the fine is £300 or 5% of the due tax, depending on which is the higher amount. At 12 months, this charge can be applied again.
All penalties are cumulative and are in addition to the tax you will finally need to pay.
What Can You Do?
It’s getting near the deadline and you’re beginning to panic.
You could call HMRC and ask for the return to be withdrawn if you don’t think you are required to submit one – this only happens in a very few cases and is unlikely. If you are a sole trader, even if you only worked a little in the tax year, you still need to make a submission.
That brings us to relevant excuses. There are several that HMRC will accept and these include a bereavement in the family or a stay in hospital or illness that meant you were unable to complete your returns.
- You may have had issues with the online service that HMRC offers or problems with your own software.
- There could have been a fire or flood that has prevented you from filling in your tax return.
- You may have a disability that has caused issues.
What you can’t do is say something like a third party was supposed to do the returns and they failed to do so. As a sole trader or business owner, you have a responsibility to ensure the returns are completed and filed on time.
The key is, if you have missed the deadline, the priority should be to submit your return as quickly as possible.
How to Avoid Deadline Panic
The first mistake that many sole traders and small businesses make is to put off doing their tax return until the very last minute. Getting your accounting process in order and having everything ready to go is vital if you want to avoid mistakes.
For self-assessors, there’s a big benefit in posting your tax return as soon as it gets to 6th April, even if you don’t yet have the money to settle the bill. It means you know how much you have to pay and where your finances are with regards to your business.
Keeping accurate records is also the best way to ensure that you can do your tax return quickly and efficiently when the time comes. The Government is moving towards Making Tax Digital and have already implemented this for VAT. Their next step is to ensure all income tax submissions are done via digital software. If your business doesn’t yet use this kind of accounting software, you may want to begin thinking about it.
See our VAT accounting services here for more information.
Missing the tax deadline can be a nightmare for any business owner. Working with a professional accountancy firm at this time of year can make a big difference. It can take a lot of the hassle out of doing all the bookkeeping.
Not only that, an accountant may also be able to spot areas where you can reduce your tax liability by claiming allowable deductions.