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Freelancers and different self-employed face hefty new curiosity costs 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, informed the Monetary Occasions: “That is the best fee 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 exhibits that small companies account for over half of the UK tax hole
Most of the UK’s 4.4m freelance employees pre-pay earnings 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’s 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 12 months.
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, that means tens of hundreds of freelancers may keep away from paying any tax in any respect
Late fee may additionally put freelancers and others beneath elevated scrutiny from the taxman.
Stefanie Tremain, a companion at tax and advisory regulation agency Blick Rothenberg, mentioned: “Late fee might also elevate the person’s ‘profile’ with HMRC and improve the potential for 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 12 months, if you happen to assume your tax legal responsibility will probably be decrease than the 12 months earlier than. Nonetheless, HMRC will cost curiosity and probably 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 lowered their 2022/23 funds on account ought to doublecheck their earnings for the 12 months, regulate funds on account if obligatory, and pay any shortfall as quickly as doable to minimise curiosity costs. Don’t overlook that curiosity might 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’ll discuss via their place. You could possibly 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 hundreds of thousands of self-employed – HMRC postpones Making Tax Digital earnings tax reporting for hundreds of thousands of small companies, elevating threshold to £30,000 earnings from April 2026
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