The deadline to submit a self-assessment return ended on 31 January, with just over a million taxpayers missing the cut-off point this year.
The knock-on effects for filing a return late can add thousands to your bill if you leave it for too long – even if you do not owe any tax.
If you are yet to file a return, the penalty would by now (6 May) have amounted to £900 – the most for the £10 daily fine received for not submitting the form to HMRC.
It escalates with 5% fees on your tax bill and additional £300 penalties for every six months the return is late. One way of paying your bill is through HMRC’s ‘time to pay’ arrangement, which divides your bill into monthly payments from your chosen account.
This option is designed for taxpayers experiencing financial difficulty and the monthly payments are based on your disposable income after housing, food and bills are paid. The amount will often be half of your disposable income after those outgoings are factored in.
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The HMRC method is flexible, as you can extend how long you pay for the bill, but the longer the period, the bigger the associated interest.
Interest options will often be lower than other short-term loan offers, but this might not be the best plan for some taxpayers, including those with a higher disposable income and “substantial” assets, Pepper Money warns.
Aside from HMRC’s payment plan, there are the following options to consider too.
Here are three payment options and their limitations, according to Pepper Money:
1. Specialist consumer loans: Specialist consumer loans for self-employed borrowers might initially seem convenient, but their approval criteria can be strict, especially for those with fluctuating incomes. Monthly repayments are fixed, which aids budgeting, but borrowing limits and repayment terms can be less flexible for larger tax liabilities.
2. Second charge mortgage: A second charge mortgage allows homeowners to leverage their home equity, providing access to larger loan amounts. These secured loans typically offer lower interest rates compared to unsecured borrowing, making repayments potentially more affordable. Additionally, spreading repayments over a longer period can significantly ease monthly financial pressure, meaning this could be a more manageable solution for larger tax debts.
3. Risks of using credit cards and overdrafts: While credit cards or overdrafts might offer quick solutions, the high interest rates (often exceeding 30% APR for overdrafts) and strict repayment terms can quickly make these methods costly. Even 0% credit cards have strict repayment windows, and failure to clear balances within promotional periods can lead to substantial charges.
‘Crucial first step’
Ryan McGrath, director of secured loans at Pepper Money, added: “If you’re facing a large tax bill, it’s important to make informed financial decisions.
“Speaking to a financial adviser can be a crucial first step to understanding all of your options, so they can recommend arranging an HMRC payment plan, applying for a specialist loan, or using home equity – taking action now could help avoid unnecessary costs and financial stress.”
Meanwhile, with self-employed taxpayers facing limited financial resilience, to avoid falling into unmanageable debt or financial stress before the next tax bill, here are four tips to consider from Pepper Money.
Planning tips:
1. Set aside money throughout the year – Consider a dedicated tax savings account.
2. Use accounting software – There are platforms that will allow you to track tax liabilities automatically.
3. Plan borrowing in advance – If cash flow is tight, explore lending options before the deadline to avoid emergency borrowing.
4. Consider refinancing – If you’re a homeowner, refinancing debt through a second charge mortgage or remortgage could help reduce monthly repayments.
