Late Payment Interests and coronavirus may affect 21/22 Tax Returns
Some voluntary Class 2 NI payments for 2020/21 have not been accepted by HMRC’s system, which could affect your entitlement to the state pension. Do you need to take action to fix this issue?
If you are self-employed but don’t earn more than the small profits threshold, you fall into the category of people who pay Voluntary Class 2 NI. It’s only £3.15 per week, and entitlements like state benefits and the state pension will be preserved – much better than opting for Class 3 NI at £15.85 per week.
Unfortunately, some 2020/21 tax returns are rejecting voluntary NI entry. The filing deadline was extended to the end of February due to COVID-19, but only returns filed after the regular 31 January deadline receives this error message. This means that either the voluntary NI wasn’t paid or it was paid, but your self-assessment account still has a credit for the amount.
HMRC will send letters in December to explain the situation to everyone it affects. If this may apply to you but don’t receive a letter, call the National Insurance Helpline at 0300 200 3500. Before making any extra payments to HMRC, double-check whether you have enough qualifying years for the state pension by checking your NI record in your tax account.
Declare coronavirus grants on tax returns
There are less than 100 days until the 2021/22 tax return deadline, so HMRC reminds self-employed taxpayers to declare coronavirus payments. What else do you need to include in your return?
After the final payment for the self-employment income support scheme (SEISS) ended over a year ago, many people have forgotten to add it to their tax returns. You are supposed to include all payments received during that tax year when you file your taxes. If you’re unsure which payments fall under this rule, read on for more information.
If you began self-employment in 2019/20 (this includes partnerships), this fourth tranche of SEISS payments may be the first time you’re reporting it on your taxes. Until this point, the prior three tranches hadn’t considered profit figures from 2019/20 like this one.
Don’t Miss the Key December Deadline
The deadline for filing your tax return for 2021/22 is 31 January 2023. However, you might need to file earlier to avoid a late penalty.
Why might the 30th of December be relevant to you? More than half a million tax return filings were done on January 31st, 2022. This is the electronic returns’ standard filing deadline yearly. Extensions because of pandemics have been seen in recent years. However, this is unlikely for the 2021/22 returns.
If your income is taxed through PAYE and you don’t owe more than £3,000 in taxes, you can ask HMRC to recover the amount owed through your PAYE code instead of one lump sum on January 31. However, you must file your return no later than December 30, following the end of the tax year for this option to be available.
You only have until the end of the month to do this for 2021/22, and your code for 2023/24 will be automatically updated to reflect the new amount. Not only does this prevent you from making payments on account, but it’s also a very financially responsible option given our current economy.
If you don’t make the deadline, there’s no penalty, but you can’t use the PAYE option. If by January 31st you still haven’t made your payment, then agree to a time-to-pay arrangement with HMRC – just keep in mind that interest will accrue, which doesn’t happen if using the PAYE code method.
An additional increase to HMRC late payment interest
Late payment and repayment interest rates from HMRC are set to increase again in November, due to a recent hike in the Bank of England base rate. If you’re worried about being affected, don’t be; we have all the details here. From 14 November 2022, the following rates will apply:
- Late corporation tax paid quarterly – 4%
- Interest on overpaid corporation tax instalments – 2.75%
From 22 November, the rates for other taxes will apply:
- Late payment interest – 5.5%
- Interest on overpaid tax – 2%
You should calculate your tax liability as soon as possible if you have an outstanding 2021/22 tax return to make sure you can meet the payment deadline and avoid (or minimise) interest charges.
If you have any questions or need help with filing your 21/22 tax returns, you can consult professional accountants in London. It’s important that you are aware of all the key deadlines and what to include in your return, so you don’t incur any late payment penalties or extra interest charges. With just under 100 days until the 2021/22 deadline, now is the time to get your tax affairs in order.
Thao is a Senior Accounting Manager at Clear House Accountants. Her experience in the industry has led her to her current position in which she is responsible for a team of accountants, tax planners and bookkeepers.
Thao works with her team to help clients from a variety of industries, grow, save money and plan for the future. Thao holds a Bachelor and Masters degree in Accounting and Finance and is currently working towards her ACCA, she is also a Xero and Quickbooks Certified Advisor.
Thao’s expertise lies in high-level tax planning, management accounting and strategic business planning based on financial performance and business analytics. Her experience, expertise and knowledge make her an exceptional contributor at Clear House.