Taxpayers are being warned to pay any tax due by the 31 January deadline as HMRC interest rates hit their highest rate for more than 20 years

The interest for not paying self assessment tax on time has been charged at 7.75% since last  August and penalties accumulate for late payment.

The self assessment tax deadline is rapidly approaching and if any outstanding assessments are not paid by 31 January charges can quickly mount up, warn accountants at Blick Rothenburg.

Through 2023 the late payment charge increased from 6% on 6 January to a high of 7.75% on 22 August 2023.

In April 2020 the late payment interest rate was just 2.60% then went up to 2.75% in January 2022 when the Bank of England raised the base rate. There were a further eight increases in 2022 to 5.50%.

January 2023 saw a further increase to 6%, with five increases last year to the current high of 7.75%. This is the highest rate since it was 7.5% in May 2001.

Stefanie Tremain, tax partner at Blick Rothenberg said: ‘If any tax due by 31 January 2024 is not paid in time, HMRC will charge interest. Currently at a rate of 7.75% per annum, from the due date to the date of payment.

‘In addition, a 5% penalty will be charged if the 2022-23 balancing payment is not paid within 30 days of the due date, with an additional 5% penalty charged if the tax remains outstanding after six months and 12 months.’

Tremain advised that taxpayers should ‘consider making an estimated payment’ to avoid additional charges, even if it is not exactly correct at the time.

Filing a return after midnight on 31 January will result in a penalty of £100, then after three months a £10 a day penalty kicks in until the payment is made. This can go up to a maximum of £900.

Tremain said: ‘If your tax return remains outstanding after six months, a tax geared penalty will be charged at the rate of £300, or 5% of your overall tax liability if that is higher.

‘If your return is over 12 months late, another £300 (or 5% of the overall tax liability if greater) penalty will be charged.’ 

However, there are some excuses HMRC consider to be reasonable for filing late. These include a relative passing away close to the deadline, you were in hospital or had a life-threatening illness, your computer broke, HMRC services were down and lastly, a fire, theft or flood stopped you from being able to complete the return.

Amendments to a tax return can be made to a tax return up to 12 months from 31 January 2024, although you will be charged interest if it was underpaid.

Tremain said: ‘You could, however, amend your return if you realise you have missed a relief you are entitled to, such as relief for Gift Aid donations or pension contributions, which means you may be due a tax refund.’

A Time to Pay arrangement can be set up if individuals are struggling to pay their bills but ‘such arrangements are specific to each taxpayer and will depend on your own individual position as to whether HMRC agree to a Time to Pay and, if they do agree, what the terms will be,’ Tremain added.

One in four taxpayers still have to file their annual tax return or face a £100 penalty with only one week to go until the self assessment deadline

HMRC has warned that 3.8m people still have to file their tax return by 31 January, up on last year’s figure of 3.4m at the same date. An estimated 12.1m taxpayers have to file under self assessment rules, and so far 8.3m have filed online for the 2022-23 tax year.

It is important to file by the deadline or face an automatic £100 penalty, which was paid by an estimated 2.7m taxpayers last year.

Dawn Register, head of tax dispute resolution at BDO said: ‘There could be tens of thousands of people who will have been drawn into the self assessment tax net for the first time in the 2022-23 tax year. Many may be unaware of their obligations to file a tax return before 31 January 2024 and could run the risk of penalties.

‘These new filers could include parents claiming child benefit whose salaries crossed the £50,000 threshold for the first time in the 2022-23 tax year and who will have to repay some or all of their benefit through the high income child benefit charge.

‘They might be higher earners whose salaries topped £100,000 or pensioners who earned more than their savings allowance because of rising interest rates. Alternatively, they could be working people whose side hustle earnings were above £1,000 during the tax year.’

Due to pressure on HMRC phone lines, the availability of call agents has been reduced and only complex enquiries will be dealt with over the phone. All other enquiries will be directed to HMRC’s online services.

Myrtle Lloyd, HMRC’s director general for customer services, said: ‘If you are a self assessment taxpayer, now is the time to take action and get your return done. People can familiarise themselves with the process by checking out HMRC’s online resources on gov.uk.’

For anyone unable to pay outstanding tax in full, it is possible to set up a time to pay arrangement online, without speaking to HMRC, if less than £30,000 is owed.

When completing a return, it is important to ensure bank account details are included, so that if HMRC needs to make a repayment, they can do so quickly and securely without needing to issue a cheque.

The penalties for late tax returns are:

•            an initial £100 fixed penalty, which applies even if there is no tax to pay, or if the tax due is paid on time;

•            after three months, additional daily penalties of £10 per day, up to a maximum of £900;

•            after six months, a further penalty of 5% of the tax due or £300, whichever is greater;

•            after 12 months, another 5% or £300 charge, whichever is greater.

HMRC will consider a taxpayer’s reasons for not being able to meet the deadline. Those who provide a reasonable excuse may avoid a penalty.

There are also additional penalties for paying outstanding tax late. These are 5% of that unpaid at 30 days, six months and 12 months. Interest will also be charged on any tax paid late.

It is important to let HMRC know of any changes to personal details or circumstances, such as a new address or name, or if you have stopped being self-employed or your business has closed.

Anyone who thinks they no longer need to complete a self assessment tax return for the 2022 to 2023 tax year, should tell HMRC – so that they can issue a withdrawal notice – before the deadline on 31 January 2024 to avoid any penalties.

Customers need to be aware of the risk of falling victim to scams and should never share their HMRC login details with anyone, including a tax agent, if they have one.