Self assessment tax warning - late payment interest still applies

Most UK taxpayers have tax deducted automatically from their wages, pensions or savings, and so don't need to file a return. But tax returns are due from those who've not had tax automatically deducted, or who have earned extra untaxed income - usually the self-employed or high earners. The deadline for completing an online self-assessment tax return for 2019/20 was this Sunday (31 January).

HM Revenue & Customs says 10.7 million taxpayers have now filed returns. The 1.8 million who haven't but need to will have the usual late-filing penalties waived so long as they do it by 28 February, due to special measures put in place by HMRC due to the coronavirus crisis. But crucially, if you haven't paid tax owed, you will still be charged the usual 2.6% interest on what you owe.

If you can, file your return as soon as possible, so you know exactly how much you owe and can settle it. But HMRC says if you can't file your return yet, you should still pay an estimated amount as soon as possible, to minimise any interest you're charged - see full help below. Also see our Coronavirus Self-Employed and Small Limited Company Help for more on what you can do to boost your finances in light of the pandemic.

Late payment interest is charged daily from 1 February

Late payment interest accrues daily from the due date until the tax is paid in full. It's charged at 2.6% per annum, so if you paid a £100 tax bill a year late, you'd be charged £2.60. There are also late payment penalties which can be charged on top of this, the first of which is a 5% fee on 3 March if you've not settled your bill by then.

For a full breakdown of what interest and penalties you'll be charged in different scenarios, for both late payment and late filing, use the Government's Self-assessment penalties calculator.

Even if you've not filed a return, estimate what you owe and pay that ASAP

Ideally you should file a return as soon as possible, as once you have you'll know exactly how much tax you owe. But as interest is charged on outstanding payments from 1 February, if you can't file now, HMRC says it's best to work out an estimate of what you owe now, pay that, then adjust as necessary once you have the final bill:

• You may already have an estimate for how much you owe. For instance, you might have an idea because you were due to make an 'on account' payment by 31 July 2020 which was delayed, or you may be pretty sure that you've nothing to pay.

• HMRC has a tool which can help - but you'll need to have a rough idea of your income. Its 

  Estimate income tax for a previous year 

  tool will give a rough estimate for what you owe for 2019/20. It asks you to enter ‘earnings’, but HMRC says it will produce an estimate if you include your income from other sources too. You'll also need to give other info, such as interest you've earned and Gift Aid donations you've made, and it will calculate a rough figure. 

  HMRC also has a Self-assessment tax bill ready reckoner which is aimed more specifically at the self-employed and may also give you an idea - however it's now set up to estimate your 2020/21 rather than 2019/20 tax bill.

  Remember both of these are only rough tools to give an estimate, so if your tax affairs are complex or you think the figure it's given is wrong, always double-check before making a payment. We've not had much feedback on the tools, so if you use them let us know how you get on the forum thread.

Once you've worked out an estimated amount for how much you owe, you can pay in the normal ways - online, via your bank, or through the post - though you can no longer pay with a personal credit card or at the post office. If the estimated amount you pay is less than what you actually owe, you can make up the difference later and will at least have reduced some of the late payment interest. If you overpay, you'll get a rebate in due course.

Struggling to pay? You can sign up to a repayment plan - but must file first

Those who owe tax of between £32 and £30,000 can use HMRC's 'Enhanced Time to Pay' mechanism to agree a repayment plan to spread that tax bill and repay it by direct debit over up to 12 months.

You don’t need to have met the 31 January filing deadline to use the service, but must have filed a return before you use it. So if you're struggling to pay, file a return ASAP and then contact HMRC about signing up to a repayment plan. The repayment plan must be set up by 1 April at the latest though, and before 3 March to avoid a 5% late payment penalty.

Speak to HMRC urgently if there's a reason you've not been able to pay

While HMRC's still charging interest on late payments, as normal if you've a reasonable excuse for not paying your tax on time, contact it and explain. This is usually something unexpected or outside your control that stopped you meeting a tax obligation. For example:

• Your partner or another close relative died shortly before the tax return or payment deadline.

• You had an unexpected stay in hospital that prevented you from dealing with your tax affairs.

• You had a serious or life-threatening illness.

• Your computer or software failed just before or while you were preparing your online return.

• Issues with HMRC's online services.

• A fire, flood or theft prevented you from completing your tax return.

HMRC has said if you're unable to file your tax return by 28 February due to a coronavirus-related problem, it may waive the fine you'd face then, though it's not been specific about what scenarios this might include. It's not said anything specific about waiving late payment interest or fees due to coronavirus - but as above, if you've a valid excuse, contact it to discuss.

Self-employed workers and high earners need to file self-assessment tax returns

If you've not already filed a self-assessment tax return for 2019/20 and are wondering if you should have, you need to file a return if any of the following applied in the 2019/20 tax year:

• You were self-employed and your income was more than £1,000.

• Your income was more than £50,000, and you or your partner claimed child benefit.

• You earned more than £2,500 from renting out property, or from other untaxed income such as tips or commission.

• You earned more than £100,000 in taxable income.

• You earned £10,000 or more before tax from savings, investments, shares or dividends.

• You earned income from abroad, or lived abroad and had a UK income.

• You need to pay capital gains tax.

• You received income from a trust.

• Your state pension was more than your personal allowance and was your only source of income (unless you started getting your pension on or after 6 April 2016).

• HMRC has told you that you didn't pay enough tax last year (and you haven't already paid up through your tax code or voluntary payments).

• You filed a self-assessment tax return last year (even if you didn't owe any tax). You'll need to do this unless HMRC has already written to you to say you don't need to file one.

Here are the other key need-to-knows:

• You need to be registered to file a tax return online. If this is your first time filing a return, you can register by visiting the HMRC website. HMRC will then set up your self-assessment online account and send you a letter with your unique taxpayer reference - a 10-digit code you'll need the first time you log in. This can take up to 10 working days to come through. 

  If it's your first time filing online but you already have a reference number – for example, because you've previously filed a paper return – you should be able to skip this step and just register for the online service.

• You can retrieve forgotten login/password details via Gov.uk. You'll need to log into your self-assessment account with your Government Gateway ID or using Gov.uk Verify.

  - Forgotten your Government Gateway details? You can retrieve your user ID or reset your password online.

  - Forgotten your Gov.uk Verify details? You'll need to use the forgotten username or password function of the provider which has verified your identity. See Gov.uk for more.

  If you're signing into your self-assessment account for the first time and have forgotten your unique taxpayer reference number, you should be able to find it on previous tax returns or on other documents from HMRC, such as payment reminders. It's also available on your HMRC online account. If you can't find your unique reference, call the self-assessment helpline on 0300 200 3310.