If you’re self-employed as a sole trader (or a partner in a business partnership), you must fill out a self-assessment tax return.

This helps calculate just how much income tax you need to pay on your earnings. Tax returns for the tax year (April to April) must usually be submitted by January the following year.

Tax returns for the 21/22 tax year, for instance, must be submitted by 31 January 2023. For more information, have a look at our blog on Why January 31 Is Crucial For The Self-Employed.

It’s important to get your return filed on time because late filing (as well as late payment) can land you with a financial penalty. We’ll be looking at HMRC late filing penalties in more detail in this blog post.

What are HMRC late filing penalties?

HMRC late filing penalties are what they say on the tin: the UK government issues penalty charges if you don’t submit your self-assessment tax return before the deadline. As stated before, this is usually the end of January. However, in rare circumstances, it may change.

This year, for instance, no penalty charge was incurred if you submitted your 20/21 tax returns by 28 February 2022. This was done as a recognition of the pressures faced by self-employed professionals during the Coronavirus pandemic.

If you submit your self-assessment tax return within three months of the deadline, you’ll receive a penalty charge of £100. Any longer than that, and the charge will begin to increase.

What are HMRC late payment penalties?

Just as late filing incurs a penalty charge, late tax return payments result in HMRC late payment penalties.

For what’s known as the ‘first penalty’, if tax is paid within 15 days of the due date, there’s no charge. If the tax remains unpaid after this, a penalty charge of 2% (of the outstanding tax) is issued.

If, after another 15 days, this remains unpaid, the penalty is calculated at 2% of the outstanding tax on day 15, plus 2% of the outstanding tax on day 30.

After day 30, if the tax and penalty remain unpaid, then a ‘second penalty’ is issued; this is a penalty charged at 4% of the outstanding tax, accrued at a daily rate.

That daily increase will stop once the tax you owe has been paid. If you’re not going to be able to pay your outstanding tax, you could consider a Time to Pay Arrangement.

HMRC penalties: final thoughts

Filling out a self-assessment tax return is a daunting prospect for some people, particularly with the looming fear of late filing or late payment penalties.

Fortunately, we can help. Here at Accountants East London, we’ll guide you every step of the way from filling out to submitting your self-assessment tax return.

For more information on business record-keeping and how to satisfy HMRC, read our blog on the subject. For more accounting advice, contact us today!