HM Revenue and Customs (HMRC) is poised to impose penalties on millions of UK households who have left their annual tax return to the very last minute. With the crucial deadline of January 31 fast approaching, a significant backlog of filings remains outstanding.
A Race Against Time for Millions
According to official HMRC figures, approximately 5.65 million self-assessment returns were still outstanding at the start of January. This represents nearly half of the estimated 12 million individuals required to file for the 2024-25 tax year. The January 31 cut-off is not only the final date for submitting online returns but also the last opportunity to amend a return from the previous 2023-24 tax year.
Personal finance experts are urgently warning taxpayers to avoid common pitfalls that could lead to costly errors or unexpected bills. Key areas of concern include incorrect calculations for capital gains, the organisation of accounts, and decisions around voluntary National Insurance contributions.
Heightened Financial Stakes and Common Pitfalls
The financial consequences of late submission have been sharply increased. The Labour government substantially raised the interest rate charged on late-paid tax. It is now set at the Bank of England base rate plus 4%, currently standing at 7.75%, a measure designed to "encourage prompt compliance."
Commenting on this disparity, former Grant Thornton tax director and Telegraph columnist Mike Warburton said, "I can appreciate the Government wants to collect tax promptly, but the current rate at 7.75% does seem harsh when compared with the rate paid by HMRC on tax repayments at just 2.75% – particularly given the delays experienced."
Experts specifically highlight the need for vigilance around several critical areas:
- Capital Gains Tax (CGT): A major complication arises from changes announced in the October 2024 Budget, which increased the tax rate on shares with immediate effect. Taxpayers must carefully determine if gains were made before or after this change.
- Payments on Account: Individuals must prepare for potential upfront tax payments for the coming year and ensure they do not overpay.
- Cryptoasset Returns: All taxable activity involving cryptocurrencies must be declared; forgetting this is a common error.
Expert Warnings and a Growing Tax Net
Charlene Young, a savings expert at investment platform AJ Bell, emphasised the risk surrounding capital gains. "Depending on how many people will have made gains in the second half of the tax year, there’s a real danger here," she said. "There were lots of sales just ahead of and just after the Budget, and it may not be clear to some whether they made a gain before or after."
She further noted that the issue is affecting a growing number of people. "More and more people are being dragged into the CGT net, so this will become more of a problem. With the allowance being so low, we know lots of people were dragged into the net in 2024," Young added.
The message from HMRC and financial advisers is unequivocal: taxpayers must act now to complete their returns accurately and submit them before the January 31 deadline to avoid automatic penalties and high interest charges on any tax owed.
