It is the time of year again when (those less organised) people are frantically seeking to submit their returns before the 31 January deadline. Most people are reasonably well educated about the £100 late filing penalty that can be applied for breaching this deadline (whether or not any tax is payable). A point that is not so much at the forefront of most people’s minds is the nasty 5% surcharge that can be applied to amounts of tax for the year which remain outstanding on 28 February. This will often be a much bigger hit than the late filing penalty.
In practice (despite best intentions) it is fairly common for taxpayers to not fully appreciate their liability until quite close to the 31 January payment deadline. Payments on account should usually have eased the pain somewhat but when increased profits have been made the taxpayer can still find himself or herself scrabbling around for liquid funds close to 31 January. Arguably there is little or no commercial punishment for paying a couple of weeks late as late payment interest will simply be charged at the relatively benign rate of 2.75% per annum. This simply represents ‘commercial restitution’ and a tax payer would probably expect his investment return to exceed this rate. However if payment is left a bit too late then an acceptable finance cost becomes quite costly.
Stan owes £80,000 of further tax in respect of 2015/2016 and the payment date for this is 31 January 2017. He needs to liquidate a few investments to pay this and this will take a few weeks. If he pays on 28 February 2017 then his delay will have cost £169. If he pays on 29 February 2017 then the delay will have cost £4,175.
It is amazing how many people let this very important date slip. A practical tip would be to make a diary note/alarm for about 24 February (as some payment takes some time to process). If the date is missed then the taxpayer is back on the cheap 2.75% interest rate until 31 July when they would be hit with another 5% surcharge.
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