HMRC has confirmed that four million out of twelve point two million taxpayers have yet to file their 2020-21 self-assessment tax returns. Which means that an equivalent proportion of taxes due 31 January 2022 will remain unpaid; at least for the foreseeable future.
We have reported on our blog earlier in January 2022, that HMRC will allow a further month, until 28 February 2022, for unfiled 2020-21 returns to be filed without incurring a late filing penalty.
And further, anyone who cannot pay their tax liabilities by the 31 January 2022 deadline will not receive a late payment penalty if they pay their tax in full, or set up a time to pay arrangement, by 1 April 2022.
Which begs the question, why bother filing a return earlier in the tax cycle?
Two reasons for filing – or preparing a return for filing - earlier in the tax cycle, are:
- Preparing a 2020-21 return quantifies any income tax or NIC that will need to be paid on 31 January 2022. In a nut-shell, taxpayers who prepare their returns shortly after the end of the relevant tax year, will have more time to save funds to clear tax due the following January. In theory you could prepare your 2020-21 return during April 2021 which would give you nine months to save for any tax due.
- The 2020-21 return will reveal any balance of taxes due for 2020-21 and also set the amount of any payments on account for 2021-22 (these payments on account are due 31 January and 31 July 2022). If you consider that taxable earnings in 2021-22 are going to be lower than those during 2020-21, you can elect to reduce payments on account for the later year.
The four million taxpayers, who we are advised are still to file for 2020-21, may be in for a shock when their liabilities are finally revealed in the coming month. Although HMRC have been generous in forgoing late filing and late payment penalties for restricted periods, interest will still be charged on tax paid after due dates.
We have all suffered from the impact of the pandemic to some degree, either personally or in a business capacity in the last two years, but the old maxim, be prepared, still holds water; and we would advise all taxpayers to adopt the sooner rather than later approach when they come to consider tackling their self-assessment tax returns for 2021-22.