In a surprise move and with only a week to go until the 2019/20 tax return filing deadline, HM Revenue & Customs (HMRC) announced on January 25 that it would not be charging the usual automatic late filing penalties of £100 for any 2019/20 tax returns that were not filed by January 31, 2021.
HMRC had come under increasing pressure from various bodies, including the Institute of Chartered Accountants and the Chartered Institute of Tax, to delay the filing deadline due to the pressures which a lot of businesses and individuals are continuing to face as a result of the coronavirus pandemic.
Initially HMRC stood firm and said the January 31 filing deadline would not be changed, but that if any taxpayers could not file their returns by January 31 due to the impact of the pandemic, they would consider this to be a ‘reasonable excuse’ for failing to meet the deadline and would cancel the late filing penalty accordingly.
This approach would, however, have meant that penalties were still issued to taxpayers and they would subsequently have to appeal them.
As the month of January progressed, it became increasingly apparent that the number of taxpayers who had not filed their returns was more significant than usual, so HMRC decided to back down and agree to not charge penalties as long as returns were filed online by February 28.
This will have come as welcome relief to those taxpayers who have not been able to get their return filed for various reasons connected with the coronavirus pandemic, but such individuals should not rest on their laurels.
Due date for payment of your tax liability remains January 31, 2021
The ‘Time to Pay’ service can allow you to spread the cost of your tax liability over a period of up to 12 months, with payments being made monthly by direct debit. Prior to October 1, 2020, this was available to those under Self-Assessment with a tax liability of up to £10,000. However, due to Covid-19, this limit has been increased to £30,000 to help ease any potential financial burden that may have occurred as a result of the pandemic.
If you wish to set up your own self-serve ‘Time to Pay’, you can do so online or by calling HMRC. You must meet the following criteria:
- You must have no outstanding tax returns due. Therefore, this can only be set up once your 2019/20 tax return has been submitted to HM Revenue & Customs
- You must have no other tax debts due
- You must have no other HM Revenue & Customs payments plans set up
- Your outstanding Self-Assessment tax liability must be between £32 and £30,000
- It must be set up no more than 60 days since the tax is due for payment. Therefore, it must be set up by no later than April 1, 2021.
If you do not meet these criteria or require more than 12 months to settle your outstanding tax liability, you may still qualify for Time to Pay but will need to contact the Revenue directly to discuss this further.
If you set up a ‘Time to Pay’ arrangement, you will still be charged late payment interest from February 1, 2021 (see above). However, to avoid further penalties the plan must be set up by March 2, 2021, being the trigger date for late payment penalties.
Any tax returns filed after January 31, 2021, are still classed as late returns
HMRC has confirmed that although they will not automatically charge a late filing penalty as long as 2019/20 tax returns are filed by February 28, any returns that are filed after January 31 are still considered to be ‘late’ returns.
One implication of this is that HMRC has longer than usual to inquire into your return. For example, if your return was filed on January 31, 2021, then HMRC usually has to raise any inquiries into the return by January 31, 2022, (the enquiry window runs to 12 months from the date of submission of your return).
However, the inquiry window for any late 2019/20 returns is 12 months from the end of the quarter in which you file your return (with quarters starting on February 1). So, if you file your 2019/20 return on, say, February 14, HMRC has until April 20, 2022, within which to inquire into your return.
It is also worth pointing out that late submission of your tax return can have other, perhaps less immediate, financial implications which can include invalidating any insurance policy which you may have in place for professional fees arising on any tax inquiry that HMRC undertake in respect of your tax affairs. You may therefore want to read the small print of any such insurance policies very carefully.
The key message is not to bury your head in the sand. The level of penalties, interest and other implications for not filing your tax return will become worse with the passage of time, not better. Please contact us if you would like any assistance with bringing your tax affairs up to date or if there is anything else you would like to discuss.
The above is for general guidance only and no action should be taken without obtaining specific advice.
