Contractors get four-week respite from HMRC personal tax penalties

Contractors who don’t file their personal tax return by January 31st will not incur a penalty until February 28th, in a last-minute concession by HMRC which is being broadly welcomed.

But the small print of the concession, forced by accountants concerned by covid-19 restrictions, states that contractors and all other taxpayers are still obliged to pay their bill by the 31st, this Sunday.

Angela Ferguson, head of employment tax at Saffery Champness said: “HMRC have just announced no penalties for self-assessment tax returns submitted by February 28th 2021.

“But note, interest still accrues from January 31st 2021. So payments on account are recommended.”

'Four-week delay'

Tax barrister Keith Gordon confirms that the HMRC concession is “not a formal extension of the filing time limit,” meaning any tax owed is still due by Sunday January 31st.

“For taxpayers, however, it eliminates the risk of £100 penalties if the delay is four weeks or less,” the QC says.

“[And] for HMRC, it reduces what would otherwise be the inevitable volume of appeals they would have to process if penalty notices were issued in February as would usually happen.”

'Reasonable excuse isn't needed'

Asked by ContractorUK if taxpayers needed a ‘reasonable excuse’ related to covid-19 not to file their return by the 31st, and still avoid penalties until the 28th, HMRC said they do not.

“Nobody needs a reasonable excuse for what we’ve just announced, this is automatic,” a spokesman for HMRC said.

“The penalty waiver is the same for everyone, it’s just automatic so it doesn’t matter if you’re a sole trader or anything else [such as a limited company].”


Tim Stovold, a tax adviser at Moore Kingston Smith regards the concession as a “bit of breathing space” for anyone “struggling” to get their tax return completed by the 31st.

Jesminara Rahman, boss at Tax Resolute UK said: “If any taxpayer cannot afford to pay by January 31st, they may be able to set up an affordable plan and pay in monthly instalments.

“But they will need to file their 2019-20 tax return before setting up a Time to Pay arrangement.”

'HMRC may be sympathetic'

However whether taxpayers agree a payment plan now or later they will still be charged some sort of interest by HMRC, according to tax inquiry adviser Salman Anwar.

The adviser posted: “I would be hopeful that even if you really cannot file and pay by January 31st, HMRC may be sympathetic to a payment plan request.

“Taxpayers will likely be charged interest either way. The only other aspect to think about would be whether HMRC would apply a late payment penalty if you do not agree a payment plan by January 31st.”

'No late penalties for a month post-deadline'

The HMRC spokesman reflected: “People can pay an estimated amount if they can’t file -- but can pay.

“It’s important to note…there are no late payment penalties until a month after the deadline in any case.”

Andy Chamberlain, deputy director of policy at IPSE, wonders if the concession puts the cart before the horse.

“People still need to pay the bill by January 31st, or get charged interest, is that right?” he asked in a Tweet. “If so, is this a bit catch-22? Hard to know what you need to pay unless you do the return.”

'Total shambles'

Chartered accountant Wasif Raza echoed on LinkedIn: “It doesn’t make sense to me -- to extend the filing deadline but not the payment deadline.

“If the tax is known and needs to be paid by January 31st, then surely the tax return would most probably be ready for filing too.”

Even more unforgiving is Ariston Accountants’ Daud Mohammed. “Total shambles,” he added on the online thread.

“How can you expect to know what you're paying until you are filing it. And to announce it six days before the deadline as well!”

'Late announcement'

A former HMRC inspector turned dispute specialist, Bill Stevenson reasoned: “There will of course still be scope for any individual who has a reasonable excuse for missing either deadline for a genuine reason.

“The late announcement might just have been an attempt to differentiate between the genuine sufferers and annual delay merchants who couldn’t resist exploiting the system. Interest is, after all, reasonable restitution for the use of somebody else’s money.”

Despite the concession coming at the 11th hour, the Association of Independent Professionals and the Self-Employed (IPSE) called it a “helpful intervention.”

“[But] we believe HMRC could go further to relieve some of the financial stress on the self-employed,” the association said.

“In particular, we would urge government to do the decent thing and drop the late payment penalties on tax owed as well, to allow freelancers to pay this back in instalments without the threat of fines.” 

'Relieves pressure on accountants'

“During a time of unprecedented challenge, this decision will help millions of taxpayers,” confirms the Association of Accounting Technicians.

“[It] also relieves some of the pressure on an incredibly busy accountancy sector who are doing their utmost to support individual taxpayers and businesses.” 

Pressed for weeks by advisers for leniency around the January deadline, HMRC’s CEO Jim Harra said he decided on the penalties waiver after it became “increasingly clear that some people will not be able to file their return”.

“Finally sense Jim Harra thank you,” a relieved chartered tax manager said online. “Good result.”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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