HMRC glitch means self-employed risk underpaying tax bill

Thousands of self-employed individuals are at risk of underpaying their tax bill on 31st July due to an HMRC glitch.

According to business advisors Moore Stephens, HMRC may have incorrectly reduced the amount or may not have issued taxpayers with a reminder at all, meaning self-employed taxpayers will have to pick up the bill in January 2020.

Lucienne Parry, Partner at Moore Stephens, said: “A larger than expected payment in January will not only shock some taxpayers but will leave them with a large hole in their budget as they are forced to pay a huge lump sum in tax. Many are therefore likely to face serious cashflow problems.

“This is of particular concern given that many households are stretched due to the festive season.

“In some cases, we have seen individuals being wrongly sent automatic refunds from HMRC, which will need to be repaid. Those impacted are going to think it very unfair that an HMRC error could lead to interest charges and in some cases potential surcharges.”

Interest Charges

Self-employed taxpayers should be wary that this could lead to interest charges and cash flow issues in January 2020.

Those who have taken their tax bill at face value will need to be prepared that in January 2020 they will be required to pay the full bill for 2018/19 in one payment.

Unaware people will not have budgeted for this payment and could have spent money that they should have set aside for this tax bill, therefore putting themselves under financial strain.

HRMC has said that while taxpayers will face no interest charges in July 2019, it will be charging interest and potential surcharges if the full tax bill is not paid on time in January 2020, even if it is an HMRC error.

Despite this, HMRC’s position is that it is the tax payer’s responsibility to ensure that any assessments are thoroughly reviewed by the taxpayer to ensure they are correct.

“If people have any doubt or questions on the tax they owe, it’s vital to have your 2018/19 tax calculations prepared as soon as possible to help them plan and avoid any potential shocks further down the line,” said Parry.

With the number of self-employed people in the UK rising, more people are having to file their own self-assessment tax returns for the first time.

Those new to the process rely on reminders and calculations from HMRC to meet deadlines and familiarise themselves with tax payments.

However, HMRC appear to be making it more difficult to meet the criteria for reasonable late filings, and based on this evidence, not receiving a reminder is not considered a reasonable excuse, which HMRC describes as “something that stopped you meeting a tax obligation that you took reasonable care to meet”.

Just 14% of late payment fines were cancelled last year, down from 16% the previous year, suggesting HMRC is becoming less sympathetic.

Not the first time

This isn’t the first time a technical glitch in government systems have caused taxpayers problems.

As recently as January 2019 taxpayers received inaccurate payment reminders shortly before the self-assessment deadline.

On that occasion, HMRC assured taxpayers that they would not be charged additional interest due to the glitch, and also encouraged them to ensure that they checked their tax returns thoroughly.