Freelancers and different self-employed face hefty new curiosity expenses from HMRC in the event that they miss this month’s July 31 tax invoice deadline.
HMRC has hiked its payment-on-account late fee rate of interest from 5.5 per cent initially of 2023 to the present fee of seven.5 per cent.
Daybreak Register, head of tax dispute decision at accountancy agency BDO, instructed the Monetary Instances: “That is the very best fee we’ve seen for 15 years, and the unwary could also be alarmed at how rapidly this cost can ramp up your debt.”
Small companies account for 56% of UK tax hole – The federal government’s newest Measuring tax gaps report reveals that small companies account for over half of the UK tax hole
Lots of the UK’s 4.4m freelance employees pre-pay revenue tax payments in instalments twice a 12 months, in quantities primarily based on their earlier 12 months’s earnings.
The primary of the so-called “funds on account” falls due on January 31 annually. The second is on July 31.
If there may be nonetheless tax to pay after the funds on account are made, there will likely be a balancing fee due by midnight on January 31 within the following 12 months.
Freelancers may keep away from tax due to IR35 loophole – Employers who wrongly classify self-employed as being exterior IR35 must cowl their PAYE and Nationwide Insurance coverage, says HMRC, that means tens of 1000’s of freelancers may keep away from paying any tax in any respect
Late fee may additionally put freelancers and others below elevated scrutiny from the taxman.
Stefanie Tremain, a accomplice at tax and advisory legislation agency Blick Rothenberg, stated: “Late fee can also elevate the person’s ‘profile’ with HMRC and enhance the opportunity of a HMRC enquiry into their tax returns.”
Can I pay lower than what HMRC is asking for?
It’s potential to cut back your funds on account for the subsequent tax 12 months, in the event you assume your tax legal responsibility will likely be decrease than the 12 months earlier than. Nevertheless, HMRC will cost curiosity and presumably penalties in the event you over-reduce and subsequently underpay.
What if I paid lower than was due on account in 2022/23?
Now that the April 5 2023 has handed, any taxpayer who lowered their 2022/23 funds on account ought to doublecheck their revenue for the 12 months, regulate funds on account if essential, and pay any shortfall as quickly as potential to minimise curiosity expenses. Don’t overlook that curiosity might have been operating since January 31 2023 (when the primary fee on account was due) if the funds have been over-reduced.
What ought to I do if I can’t make my fee on account?
Freelancers and self-employed experiencing monetary issues now mustn’t simply ignore their POAs – moderately, they need to contact HMRC, in order that they’ll discuss by their place. You might be able to agree a ‘fee plan’ with HMRC, which may allow you to unfold out tax funds over an extended interval.
Extra on self-employed tax
Making Tax Digital mothballed for tens of millions of self-employed – HMRC postpones Making Tax Digital revenue tax reporting for tens of millions of small companies, elevating threshold to £30,000 revenue from April 2026
