Greater than 1.4 million taxpayers have been charged curiosity by HMRC for late cost of tax within the 2020-21 tax yr, a freedom of knowledge request by funding platform AJ Bell reveals.
The dimensions of curiosity funds and penalties for lacking the tax return deadline illustrates the massive variety of taxpayers scuffling with the UK’s complicated tax system, with the difficulty set to be exacerbated by frozen tax thresholds and salami-slicing of dividend and CGT allowances which can drag many into the online of self-assessment.
The FOI exhibits that over 1.4 million individuals have been charged curiosity on late tax funds for the 2020-21 tax yr, up from 1.2 million earlier than the pandemic. The rise got here regardless of furlough and company dividend cuts that means many may have owed HMRC lower than regular for 2020-21.
Moreover, the quantity of people that missed the deadline for submitting their tax return and therefore paid a late submitting penalty was 290,000 and 270,000 for tax years 2019-20 and 2020-21 respectively. Some confronted a double-whammy, with 110,000 and 90,000 in every year hit by each a late submitting penalty and curiosity prices.
One other FOI request from AJ Bell earlier this yr revealed that by the 2024-25 tax yr, the variety of individuals HMRC estimated to be paying dividend and capital good points tax would improve by 2 million. It signifies that a whole lot of hundreds extra taxpayers might discover themselves dealing with penalties for late tax cost if a comparable proportion miss HMRC’s deadlines.
Laura Suter, head of non-public finance at AJ Bell, feedback: “Don’t imagine the rumours, tax undoubtedly is taxing, and these figures lay naked simply how exhausting the British public discover finishing their tax return and paying their tax invoice. A whole of 1.43 million individuals have been hit with curiosity on their late tax funds within the 2020-21 tax yr, based mostly on the most recent knowledge obtainable. On high of that, 270,000 individuals needed to pay a late submitting penalty of £100 for lacking the deadline. What’s extra, as a result of the late cost curiosity is about at Base Charge plus 2.5% it has shot as much as 6.75%, from 2.6% at first of 2022 – that means the federal government is raking in much more cash from taxpayers.
“We noticed a leap within the variety of individuals not paying their tax invoice on time and being hit with a penalty, from 1.24 million in 2019-20 to 1.43 million in 2020-21. For a lot of this shall be as a result of they will’t afford to pay the invoice, having not set cash apart for the cost. The pandemic years took a toll on individuals’s funds, that means many may have dipped into their financial savings leaving nothing for the tax invoice. We’ll seemingly see that pattern proceed within the cost-of-living disaster years, as individuals have much less spare money put aside to fulfill the payments – notably if these tax payments are sudden.
“As the federal government drags extra individuals into paying tax through self-assessment, we’ll see increasingly more taxpayers hit by these penalties. With the tax-free allowance on capital good points and dividend taxes being dramatically lower within the subsequent yr, extra individuals must file a tax return for the primary time of their lives. On high of that, those that earn greater than £100,000 should file a return, in addition to those that have hit the kid profit excessive revenue cost and individuals who produce other sources of revenue from their important job. Clearly some individuals are going to wrestle to finish the return, or not even realise they must file one within the first place.
“Taxpayers can get their charges and prices waived, however provided that they meet a sure listing of excuses from the taxman. Merely not realizing that you just wanted to file a return or not understanding the best way to aren’t sufficient, you solely get a refund if in case you have issues like sickness or a relative’s loss of life that prevented you from submitting, or your pc breaking while you have been sending your return.
“One method to keep away from late submitting is to set common calendar reminders to immediate you to file on time – and providing you with enough time to collect the required info and put together the return. One other different is to outsource it to a skilled. It’s very potential to file a return your self, particularly if it’s simply to report an funding achieve, for instance, however you may resolve that delegating it to an accountant or tax specialist is price the associated fee.”