HOW TO AVOID SELF ASSESSMENT PENALTIES AND LATE PAYMENT FINES

Every year, thousands of UK taxpayers are hit with completely avoidable penalties simply because their Self Assessment tax return was filed late, or their tax bill wasn’t paid on time. 

In fact last year 1.1 million tax customers missed the January 31st deadline (which is the same for both filing and payment). The total amount paid to HMRC in fines for late Self Assessment in 2023 was a staggering £220 million, and it’s likely to be even higher for the last tax year when the figures are published.

As you might imagine, this is the kind of thing that drives us up-the-wall at Sadler Advisory. Because with just a bit of help from an expert accountant, it’s easy to get your tax sorted in time.

This is definitely worth asking for, as even if the tax you owe is relatively small, these penalties can quickly add up and can cripple successful small businesses.

Let’s find out exactly how to give late Self Assessment filing and payment fines a very wide birth!

KEY SELF ASSESSMENT DEADLINES YOU NEED TO KNOW

Missing deadlines is the number one reason penalties arise. The main dates are:

• 31 October – Deadline for paper tax returns

• 31 January – Deadline for online tax returns

• 31 January – Deadline to pay any tax owed for the previous tax year

• 31 July – Second payment on account (if applicable)

Even being one day late can trigger an automatic penalty.

Also, you must remember to register for Self Assessment by 5 October if you need to file for the last tax year. If you miss this deadline, and don’t pay all of your tax bill by 31 January, you could receive a ‘failure to notify’ penalty.  

This penalty is based on the amount still left to pay and you’ll receive it within 12 months after HMRC receives your Self Assessment tax return.

LATE FILING PENALTIES EXPLAINED

If you miss the filing deadline, penalties apply whether or not you owe any tax.

This is how they build up:

• 1 day late – £100 automatic penalty

• 3 months late – £10 per day, up to a maximum of £900

• 6 months late – Additional penalty of £300 or 5% of the tax due (whichever is higher)

• 12 months late – Another £300 or 5% of the tax due

In the worst cases, penalties can exceed the tax bill itself. And even if you have no tax to pay or are due a refund, the late filing penalty still applies.

LATE PAYMENT PENALTIES EXPLAINED

Late payment penalties are separate from late filing penalties and apply if tax is not paid on time.

The penalty structure is:

• 30 days late – 5% of the unpaid tax

• 6 months late – Additional 5% for any outstanding tax

• 12 months late – Another 5% for any still outstanding tax

On top of this, interest is charged daily from the day after the payment deadline until the tax is paid in full (8.00% at the time of writing, but changes periodically). This means delays can become expensive over time, and quickly end up wrecking your business’s finances. 

PAYMENTS ON ACCOUNT - A COMMON TRAP…

Many taxpayers are caught out by payments on account. These are advance payments towards the next tax year’s bill and are due:

• 31 January

• 31 July

Each payment is usually 50% of the previous year’s tax bill.

If your income has dropped, you may be able to reduce these payments, but doing so incorrectly can also lead to interest and penalties. This is an area where advice is particularly valuable and we recommend asking for our help here.

WHAT IF YOU GENUINELY CAN’T PAY?

If you’re unable to pay your tax bill in full, ignoring it is the worst thing you can do.

HMRC may agree to a ‘Time to Pay arrangement’, allowing you to spread the cost over manageable instalments. This can help you avoid late payment penalties, although interest will usually still apply.

The key is to act early and communicate before penalties escalate.

REASONABLE EXCUSES - WHEN PENALTIES MAY BE CANCELLED

HMRC may cancel penalties if you can show a ‘reasonable excuse’ for missing a deadline. Examples can include:

• Serious illness or hospitalisation

• Bereavement close to the deadline

• Unexpected technical issues with HMRC systems
  

Forgetting, being too busy, or not having the funds available usually won’t qualify. Each case is considered individually, and evidence is often required.

HOW TO AVOID SELF ASSESSMENT PENALTIES ALTOGETHER

Unsurprisingly, the best way to avoid penalties is to be organised and prepared in advance, so you can avoid all the stress of having to give HMRC a cut of your hard earned revenue. 

This means you need to:

• File your return well before the January deadline

• Set aside money for tax throughout the year

• Keep records up to date rather than scrambling at the last minute

• Get professional support if your tax affairs are complex

• Review payments on account to ensure they’re accurate
  

Early planning makes everything easier and gives you options if something changes.

PENALTY-FREE SELF ASSESSMENT SORTED

Self Assessment penalties are strict, automatic, and often disproportionate to the mistake that triggered them. But if you know what your responsibilities are regarding registering, filing and paying, they are almost always avoidable.

If you’re worried about missing deadlines, unsure what you owe, or want help planning ahead, speaking to an adviser early can save you time, money, and unnecessary hassle.

Avoiding penalties does not require a super-computer. You just need to make sure you do the basics, on time, every time.