12.1 Million Brits Face £100 Tax Fine as January 31 Deadline Looms
As January draws to a close, a pressing financial concern looms for millions across the UK. An estimated 12.1 million people must complete their self-assessment tax returns by January 31, with around half yet to submit. Those who miss this critical deadline face an immediate £100 penalty, a stark reminder of HMRC's enforcement powers.
The Rising Tide of Self-Assessment
The self-assessment net has widened significantly in recent years, now encompassing 2.4 million more individuals than in 2020. This expansion reflects successive tax adjustments that have drawn more earners into the system. Notably, three-quarters of tax returns now come from people earning less than £20,000 annually.
Several frozen thresholds contribute to this trend. The personal tax allowance remains at £12,570, unchanged since 2021 and set to stay frozen until 2031. Had it kept pace with inflation, this figure would now stand at approximately £15,480. Similarly, the trading allowance for side hustles remains at £1,000, while the dividend allowance has plummeted from £2,000 to just £500 in three years.
Key Thresholds and Obligations
Understanding whether you need to file is crucial. The self-assessment requirement typically applies if your non-PAYE earnings exceed the personal allowance. Recent changes to child benefit rules also impact filings: earners between £50,000 and £60,000 can now retain all child benefit before a taper applies, while those earning over £80,000 must repay it entirely.
"If you need to repay some or all of your child benefit payments for that year and your tax code wasn't adjusted already to account for it, you'll need to repay via self-assessment," explains Charlene Young of AJ Bell.
Escalating Penalties for Late Filers
The initial £100 fine is just the beginning. After three months, daily penalties of £10 per day can accrue. Six months past the deadline brings an additional £300 charge or 5% of the tax due, whichever is higher. Last year saw approximately 32,000 people filing in the final hour, narrowly avoiding penalties, while 1.1 million returns were submitted late.
Navigating Capital Gains and Digital Changes
Those with capital gains face additional complexity following rate hikes in the 2024 Budget. For gains made after October 31, HMRC's standard software may not suffice; taxpayers should instead use the official online 'adjustment calculator'.
Meanwhile, digital transformation continues. From April, sole traders and landlords with gross income exceeding £50,000 must file quarterly returns using HMRC-approved software. This regime will expand over two years to include all with gross earnings above £20,000.
Practical Steps to Avoid Penalties
For those facing their first quarterly filings, bridging software can translate spreadsheet records into digital formats. HMRC's Making Tax Digital website lists approved software options, with costs ranging from free for simple returns to £15-£35 monthly for more complex cases.
Vigilance Against Tax Season Scams
This period also sees a surge in tax-related scams. Cybersecurity expert Matt Cooke of Proofpoint warns: "Criminals are exceptionally skilled at crafting convincing lures that look legitimate. Because many expect HMRC communications during tax season, we can be caught off guard."
While ignoring HMRC communications is unwise, verifying any unexpected contact directly with the tax office is essential to avoid falling victim to fraud.
With the deadline fast approaching, taking prompt action ensures you pay only what you owe while avoiding unnecessary penalties that could otherwise diminish your hard-earned income.
