Self-assessment deadline looms for payments on account
Increase in requests for extended time to
pay expected as personal finances feel squeeze from credit crunch
and inflation
Leading business and financial adviser Grant Thornton says
individuals should be aware of the forthcoming 31 July deadline if
they have payments of account to make for 2007/08 or any
outstanding tax liability for 2006/07. Those who miss the deadline
will face interest and possibly a 5% surcharge on top of their tax
bill.
31 July 2008 is the date by which the second payment on account
for the 2007/08 tax year should be paid. Interest will start to
accrue after this date and HM Revenue and Customs (HMRC) could
initiate legal proceedings to recover the debt. The good news,
however, is that owing to market changes, the rate of interest
charged by HMRC on unpaid tax sits at 7.5%, rather than the 8.5%
rate that applied back in January this year. However, this will be
little consolation to those who find themselves stuck with a hefty
debt to pay.
In addition, those with any outstanding tax liability for
2006/07 that remains unpaid at 31 July 2008 will be subject to a
penalty surcharge amounting to 5% of the outstanding balance.
Sheena Hay, a senior tax manager at Grant Thornton, says, "Tax
returns and payments on account are often the last thing on
people's mind, but it's best to stick to HMRC's self-assessment
deadlines or you'll be faced with penalties for not doing so."
Hay notes that the current squeeze on the finances of UK
individuals brought about by the credit crunch and inflation will
most likely result in many individuals having dipped into savings,
traditionally set aside for tax, to pay for servicing mortgages and
purchasing fuel and food for a household.
She says, "I expect HMRC will receive a great many more requests
for agreements for extended time to pay because of the increasing
pressure on peoples' finances. For those who see this as an option,
it is worth remembering that if an agreement for payment is reached
with HMRC before the 31 July deadline, then further surcharges are
avoided."
Hay notes that any individual should have paid their income tax
liability for 2006/07 by 31 January 2008. Any unpaid tax and Class
4 National Insurance for 2006/07 outstanding at 28 February 2008
would have attracted a 5% surcharge. If there is any tax or
National Insurance for 2006/07 outstanding at 31 July 2008 then
this will attract a further 5% surcharge.
"This surcharge is in addition to any interest that will also be
accruing and any penalties due if you did not submit your return on
time," she says.
The tax authority usually notifies taxpayers or their advisers
that a second payment on account is due on 31 July 2008. It is
possible for an individual to reduce their payment on account if
they believe that the income for the current year will be less than
last year.
There is a specific form required to effect a reduced payment on
account that has to be submitted to HMRC and care needs to be taken
in reducing a payment on account because if it is incorrectly
reduced then interest and possibly penalties will be due.