Self Assessment season is always a fairly stressful time for freelancers and small business owners – and this year saw more than 600,000 people missing the deadline for filing their tax returns. But in addition to receiving penalties for filing late, many of these people are also failing to pay their taxes on time, leaving them at risk of incurring even bigger penalties for late payment.
Due to steady increases in the UK’s base interest rate over the past year, HMRC’s interest rate for business owners who don’t pay their tax on time has now risen to 7.75%. This is the highest it has been since 2007 and will be concerning to anyone who is overdue on paying their taxes.
This is especially risky at a time when late payment continues to plague UK small businesses and freelancers with 43% of all invoices sent in the past year being paid late according to our data.
How small businesses can mitigate the effects of the late tax payment interest rate rise
It’s not enough to just know when to file their tax returns – small business owners also need to know how much tax they owe and exactly when they have to pay it. And, for those who find themselves currently in arrears when it comes to paying their taxes, it’s imperative that they contact HMRC and get this sorted as soon as possible. Taking the time to prioritise paying tax will save so much stress in the future. Putting off paying HMRC risks facing a major headache and fines for late payment charges later on.
For those that are new to the filing process, there are some easy ways to get ahead. Whilst they may sound obvious, they are imperative to avoiding hassle and fines down the line. The most important place to start is registering with HMRC as soon as possible before starting the Self Assessment process. Next, ensure nothing is left out of Self Assessment Tax returns; these have to include information about any money received, or earned, from pretty much anywhere, apart from tax-free income such as ISAs. There are many complex rules and regulations to adhere to when it comes to business tax so it’s important extra care is taken to ensure rules are adhered to.The last golden rules are to always double check data and ask for an accountant’s assistance. A single, simple mistake or omission (such as not ticking the confirmation box at the end) could result in your tax return being rejected by HMRC and a fine.
HMRC’s raise in interest rates for late tax payments poses a real threat to small businesses in the UK. With the number of late payments currently so high, it’s never been more important for small businesses to ensure that they are completely on top of their finances. Those that are slow to act may be caught out by how quickly this charge can ramp up debt. There’s no assurance that the Government won’t increase this further, so getting into good financial practice now could save small businesses from financial troubles down the line.