The clock is ticking for millions of self-employed individuals and others with untaxed income, as the deadline for submitting self-assessment tax returns looms near. With only two days left before the midnight cutoff on January 31, 2025, HM Revenue and Customs (HMRC) has revealed startling statistics: approximately 3.4 million people have yet to file their returns for the 2023/24 tax year.
HMRC mandates tax returns for anyone whose income is not subject to automatic tax deductions. This group includes the self-employed, individuals earning supplementary income, landlords, people with savings or investments, and those eligible for Child Benefit with high income thresholds. This wide net ensures many people, beyond just the self-employed, will face potential scrutiny from HMRC if they fail to meet the deadline.
“Time is running out for those yet to submit tax returns,” notes Myrtle Lloyd, Director General for Customer Services at HMRC. This urgency is palpable, particularly with the consequences of missing the deadline including significant financial penalties. Anyone who files late automatically incurs £100, regardless of whether there is tax owed. For those who delay for three months, this penalty escalates to £10 per day, capped at £900, and after six months, penalties can amount to 5% of the unpaid tax amount or £300, whichever is higher.
Tax experts advocate for individuals to check and claim all allowable deductions before filing to help mitigate their tax liabilities. Chris Luckett, a tax partner at Saffery, emphasizes the importance of claiming deductions such as income tax relief on pension contributions, business mileage costs, and allowable expenses related to working from home. Utilizing these deductions can make filing less intimidating and reduce the overall tax owed.
For many, the timing of this deadline is particularly burdensome due to the financial strain many are experiencing. The rising cost of living has led individuals to seek additional income sources, or ‘side hustles’, making compliance with new HMRC regulations exceptionally important. Starting January 2025, online marketplaces like eBay, Etsy, and Airbnb will be mandated to share sales data with HMRC for users exceeding £1,700 from sales or completing more than 30 transactions, highlighting the scrutiny on supplemental income streams.
“How much you earn from your side hustle plays a pivotal role,” says Tom Biggs, partner at Wellers. If earnings from side hustles exceed £1,000 within the tax year, they must be declared. Conversely, those earning below this threshold may find themselves relatively unaffected; nonetheless, all earnings must be reported even if tax is not owed.
The rising trend of freelancers and entrepreneurs highlights the necessity of being aware of potential tax implications. Biggs explains how underlying revenue from side hustles may push taxpayers past the £12,570 Income Tax Personal Allowance threshold, leading to higher taxation and national insurance contributions. He prescribes careful consideration about the applicability of such hustles, particularly if they unexpectedly increase tax brackets.
Understanding when to register with HMRC is also key. If someone is pursuing their side hustle earnestly, they must register as self-employed to effectively manage their tax compliance. He mentions, “By doing this, you will simplify your tax reporting process.” Setting up separate bank accounts for side hustle transactions can prevent future confusion during the tax return preparation, making it easier to report and calculate income and expenses accurately.
A warning to procrastinators rings clear as the deadline approaches, leaving inadequate time to address complex tax issues they may encounter. The tax professionals recommend gathering all necessary financial documents early, checking allowable deductions, and potentially working with accountants to thoroughly navigate the process.
“Filing your tax return is more than just fulfilling legal obligations; it involves ensuring you won’t face cascading penalties,” warns Luckett. Those liable for self-assessment should take immediate action, particularly if they haven’t yet submitted their tax returns. And for anyone who feels overwhelmed, HMRC’s website offers guidance resources aimed at demystifying the process.
The end of the month serves as not only a target date for tax returns but marks the beginning of fresh obligations as the first Payment on Account for the 2024-25 tax year is also due on January 31. It is based on the prior year’s tax liability. Individuals are encouraged to prepare for these payments to mitigate financial stress and avoid penalties from accruing interest on unpaid sums.
With all these pressures, post-deadline support is available for those struggling with payments. Taxpayers can contact HMRC to establish payment plans to settle their tax liabilities gradually, which can allow them to fend off late fees. Understanding the gravity of this deadline helps highlight the need for proactive financial planning, especially for those involved with self-employment.
The theme of urgency remains, encouraged by warnings from both HMRC and tax professionals. With millions still needing to file their Self-Assessment tax returns, now is the pivotal moment to action personal finance strategies to avert unnecessary penalties and financial complications.