With the self-assessment income tax deadline looming, research has shown that four in ten (39.2%) sole traders are yet to file and pay their tax bill, with the vast majority of this group (72.5%) admitting they do not know the amount that must be paid by midnight on 31st January.
The study, carried out by online accounting firm, Crunch, in collaboration with insurer for the self-employed, Qdos, paints a concerning picture if it is a trend reflected by the 4.2m self-employed workers in the UK.
Amid 40-year high inflation and rising taxes, most (60%) of the self-employed workers who have not completed their tax return said they plan to pay HMRC by taking money from their savings – this is despite nearly three in four not knowing the amount payable.
Of those who have filed and completed their self-assessment, which accounted for 60.8% of these workers, nearly all (96.8%) paid in full. Just 3.2% have organised a time to pay arrangement with HMRC.
Should an individual miss the 31st January deadline, HMRC will issue a late filing penalty of £100 if the tax return is up to 3 months late, with fines increasing after this point. Interest payments are charged on late payments.
Darren Fell, founder of Crunch said, “There are two ways to look at this research. On one hand, the fact that most self-employed workers have filed and paid their tax bills is good news – particularly at a time when independent workers continue to bear the brunt of the economic downturn.
“But my worry is that a significant number – nearly half, in fact– of small business owners are in the dark about their self-assessment. Most plan to take money from their savings to settle up with HMRC, but the vast majority don’t know how much they owe.
“At the best of times, it’s vital that self-employed workers have clarity over their tax position. The sooner this is achieved, the sooner an individual can either pay their tax bill in full or arrange a time to pay.”
Echoing Fell’s thoughts, Seb Maley, Qdos CEO, said, “You can’t help but sympathise with the self-employed after a tough couple of years. Right now, many small business owners are struggling to pay their tax bills while the former Chancellor of all people is under pressure to resign over his own tax affairs.
“The government took a more lenient approach during Covid – and HMRC removed late payment penalties for a month to give people a little breathing space – but this isn’t the case anymore. Put simply, the Treasury is desperate to raise tax revenue.
“Added to this, along with fines for missing the deadline and interest charged on the outstanding amount, the longer a tax bill goes unpaid, the higher the risk of an individual being investigated by HMRC.”