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 at the beginning of 2023 to the present price of seven.5 per cent.
Daybreak Register, head of tax dispute decision at accountancy agency BDO, instructed the Monetary Occasions: “That is the best price we’ve seen for 15 years, and the unwary could also be alarmed at how shortly 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 staff pre-pay revenue tax payments in instalments twice a yr, in quantities based mostly on their earlier yr’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 probably be a balancing fee due by midnight on January 31 within the following yr.
Freelancers may keep away from tax due to IR35 loophole – Employers who wrongly classify self-employed as being outdoors IR35 must cowl their PAYE and Nationwide Insurance coverage, says HMRC, which 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 underneath elevated scrutiny from the taxman.
Stefanie Tremain, a accomplice at tax and advisory regulation agency Blick Rothenberg, mentioned: “Late fee may increase the person’s ‘profile’ with HMRC and improve the opportunity of a HMRC enquiry into their tax returns.”
Can I pay lower than what HMRC is asking for?
It’s doable to cut back your funds on account for the subsequent tax yr, if you happen to assume your tax legal responsibility will probably be decrease than the yr earlier than. Nonetheless, HMRC will cost curiosity and presumably penalties if you happen to 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 diminished their 2022/23 funds on account ought to doublecheck their revenue for the yr, regulate funds on account if obligatory, and pay any shortfall as quickly as doable to minimise curiosity expenses. Don’t overlook that curiosity could have been working since January 31 2023 (when the primary fee on account was due) if the funds had 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 shouldn’t simply ignore their POAs – reasonably, they need to contact HMRC, in order that they will discuss via 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.
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