- 1.4 million people hit with interest on late tax payments in the 2020-21 tax year
- This is up 15% from 1.2 million in 2019-20
- Additionally, 270,000 people were hit with a penalty for missing the tax return deadline in 2020-21
More than 1.4 million taxpayers were charged interest by HMRC for late payment of tax in the 2020-21 tax year, a freedom of information request by investment platform AJ Bell reveals.
The scale of interest payments and penalties for missing the tax return deadline illustrates the large number of taxpayers struggling with the UK’s complex tax system, with the issue set to be exacerbated by frozen tax thresholds and salami-slicing of dividend and CGT allowances which will drag many into the web of self-assessment.
The FOI shows that over 1.4 million people were charged interest on late tax payments for the 2020-21 tax year, up from 1.2 million before the pandemic. The increase came despite furlough and corporate dividend cuts meaning many will have owed HMRC less than normal for 2020-21.
Additionally, the number of people who missed the deadline for filing their tax return and hence paid a late filing penalty was 290,000 and 270,000 for tax years 2019-20 and 2020-21 respectively. Some faced a double-whammy, with 110,000 and 90,000 in each year hit by both a late filing penalty and interest charges.
Another FOI request from AJ Bell earlier this year revealed that by the 2024-25 tax year, the number of people HMRC estimated to be paying dividend and capital gains tax would increase by 2 million. It indicates that hundreds of thousands more taxpayers could find themselves facing penalties for late tax payment if a similar proportion miss HMRC’s deadlines.
Laura Suter, head of personal finance at AJ Bell, comments:
“Don’t believe the rumours, tax definitely is taxing, and these figures lay bare just how hard the British public find completing their tax return and paying their tax bill. A total of 1.43 million people were hit with interest on their late tax payments in the 2020-21 tax year, based on the latest data available. On top of that, 270,000 people had to pay a late filing penalty of £100 for missing the deadline. What’s more, because the late payment interest is set at Base Rate plus 2.5% it has shot up to 6.75%, from 2.6% at the start of 2022 – meaning the government is raking in even more money from taxpayers.
“We saw a jump in the number of people not paying their tax bill on time and being hit with a penalty, from 1.24 million in 2019-20 to 1.43 million in 2020-21. For many this will be because they can’t afford to pay the bill, having not set money aside for the payment. The pandemic years took a toll on people’s finances, meaning many will have dipped into their savings leaving nothing for the tax bill. We’ll likely see that trend continue in the cost-of-living crisis years, as people have less spare cash set aside to meet the bills – particularly if these tax bills are unexpected.
“As the government drags more people into paying tax via self-assessment, we’ll see more and more taxpayers hit by these penalties. With the tax-free allowance on capital gains and dividend taxes being dramatically cut in the next year, more people will have to file a tax return for the first time in their lives. On top of that, those who earn more than £100,000 must file a return, as well as those who have hit the child benefit high income charge and people who have other sources of income from their main job. Clearly some people are going to struggle to complete the return, or not even realise they have to file one in the first place.
“Taxpayers can get their fees and charges waived, but only if they meet a certain list of excuses from the taxman. Simply not knowing that you needed to file a return or not understanding how to are not enough, you only get a refund if you have things like illness or a relative’s death that prevented you from filing, or your computer breaking when you were sending your return.
“One way to avoid late filing is to set regular calendar reminders to prompt you to file on time – and giving you sufficient time to gather the required information and prepare the return. Another alternative is to outsource it to a professional. It’s very possible to file a return yourself, especially if it’s just to report an investment gain, for example, but you might decide that delegating it to an accountant or tax specialist is worth the cost.”
How late filing fees work:
You’ll get a penalty if you need to send a tax return and you miss the deadline for submitting it or paying your bill. You’ll pay a late filing penalty of £100 if your tax return is up to three months late, but you’ll have to pay more if it’s later, or if you pay your tax bill late. You’ll also be charged interest on late payments. You pay Base Rate plus 2.5% in late payment interest, meaning the current interest charges is 6.75% from 13 April 2023.
