The Coronavirus pandemic has placed a huge financial burden on the 4.5 million freelancers, contractors and self-employed workers in the UK, with many even facing higher than normal tax bills.
According to an exclusive survey by TaxScouts, an online tax platform, the cost of deferring taxes could spiral after nearly a third (27%) of self-employed taxpayers said the pandemic has made them more likely to delay their upcoming tax return.
Under usual circumstances, this would mean around 1.3 million people risk facing £130 million in fines to the taxman. Typically, anyone who misses the 31st January deadline is fined £100 by HMRC, who will then add additional penalties to those who continuously fail to pay this tax.
However, HMRC Chief Executive, Jim Harra has recently confirmed that the taxman won’t penalise those who file their self-assessment late this coming January. Speaking on Monday (7th December), Harra urged small companies to contact Companies House and ask for exemptions from penalties if they can’t meet a deadline.
The statistics also reveal that around one million self-employed people missed the 31st January deadline earlier this year. Three in five (62%) admitted that they put off doing their self-assessment because they don’t enjoy completing it and almost a half (47%) said they found the process stressful.
Additionally, the research showed that 44 per cent of self-employed found themselves procrastinating when sorting their tax return. A further three in 10 said they wait until January to file it, with 45 per cent of those leaving it until the final week before the deadline. Six per cent plan to sort it on deadline day.
Given that many freelancers and contractors have had their earnings diminished by the Coronavirus crisis and do not qualify fully or at all for the government support schemes, experts are warning that leaving their tax returns to the last-minute this year could leave them facing cash flow issues.
Mart Abramov, CEO at TaxScouts, is urging the self-employed to file their taxes early this year so they know exactly what they owe in 2021. He said: “We’re anticipating to see a number of larger than expected tax bills hit the self-employed in 2021 due to a piling up of the deferred tax payments from 2020, and the first advanced tax payments in January.”
“Combine this with the financial impact of the ongoing pandemic on the self-employed and our tendencies to delay our tax returns until the very last minute and we could have a perfect storm.
“The welcome news is that there are ways to manage tax payments to help with cash flow in 2021, if acted upon early. The government’s Time to Pay allows you to defer and spread out your tax bill into more manageable chunks and, though few people are aware, it is also possible to reduce your advanced tax payments in 2021, if you earned less this year than you usually would.
“[…] Being better informed about the tax you owe will make the process less stressful and give you the control to make the necessary changes to your payments and budgets as we head into another uncertain year.”