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28 Mar 2022

Last chance to pay tax for 2020-21 and avoid HMRC penalty

Those with outstanding tax bills could receive a 5% charge from 2 April

Anyone who hasn't yet paid their 2020-21 tax bill has until 1 April to either pay off the balance, or set up a Time to Pay arrangement. If you miss the deadline, you could get a penalty charge equal to 5% of the tax you owe.

While the filing and tax payment deadline was still 31 January, HMRC pushed back the usual penalty timetable this year. Where £100 late filing charges are usually issued from 1 February, they only kicked in on 1 March.

Similarly, while taxpayers usually incur a 5% fine for paying their tax late on 3 March, it's pushed back to 2 April.

However, late payment interest is still in place, and will have been applied to any outstanding tax since 1 February.

Here, Which? explains the rules for this year's tax deadlines, and outlines the different ways you can pay your tax bill.

Ways to pay your tax bill

There are several ways you can pay your tax bill, but the amount of time they take can vary.

HMRC must have received your payment by midnight on 1 April, so make sure you don't choose a payment method that's going to take too long.

Same day or next day:

  • online or telephone banking
  • Chaps
  • debit card online
  • in-branch at your bank or building society.

Three working days:

  • Bacs
  • direct debit - if you've already had one set up with HMRC
  • cheque through the post (though this could take longer if Royal Mail services are experiencing delays).

Five working days:

  • direct debit - if you haven't set one up with HMRC before.

Some of these payment options can be made via the HMRC app.

HMRC no longer accepts tax payments via personal credit card, and you can no longer pay your bill at the Post Office.

Payments made with a business debit card will attract a fee, which will vary depending on your provider.

Time to pay arrangement

If you can't pay your tax bill, you may be able to set up a time to pay arrangement. This is a payment plan that splits the tax you owe into smaller chunks, to be paid back over the coming months.

You can set up a self-serve time to pay arrangement online if:

  • owe less than £30,000 in tax
  • have filed your 2020-21 tax return
    • plan to repay the debt over the next 12 months or less.

If you owe more tax than this, or need more time to repay what you owe, call the self-assessment payment helpline on 0300 200 3822.

However, you must have taken steps to set up the arrangement by 1 April, or you'll be charged the 5% tax penalty.

What happens if you don't pay by 1 April?

Any tax liability for 2020-21 that hasn't been paid by 2 April - or had a payment arrangement set up for it - will result in a 5% penalty charge.

So, if you still owe £1,000 in tax on 2 April, you'll be charged £50, bringing your tax bill up to £1,050.

The 5% charge will be based on the amount of tax owing on 3 March.

If you leave paying your tax bill even longer, more penalties will be on the way. Any outstanding tax will incur further 5% penalty charges at the end of August 2022, and February 2023.

Interest charges

Interest has been applied to all outstanding tax balances since 1 February - this is charged in addition to extra late payment charges.

The rate of interest charged on late payments has increased several times, in line with the Bank of England base rate. Interest was charged at 2.75% between 1 to 20 February; it increased to 3% on 21 February.

The rate of interest is due to increase to 3.25% from 5 April.

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What if you haven't filed your tax return yet?

Despite the delayed late filing penalty, around 900,000 taxpayers may still have to pay the £100 charge. Of the 12.2m expected tax returns, only 11.3m were filed by 28 February, according to HMRC.

If you haven't filed your tax return yet, do it as soon as possible - there are further late filing penalties that can be charged, which become more expensive the longer you leave it.

From 1 March, a daily penalty of £10 is being charged. The daily charge will last up to 90 days - which, coupled with the initial £100 fine - will mean you'll owe an extra £1,000 on top of your tax bill.

Once your tax return is six months late, you'll be charged either £300 or 5% of the tax you owe - whichever is bigger.

If your tax return is 12 months late, you'll be charged another £300 or a 5% penalty.

Try the Which? tax calculator

If you haven't yet submitted your 2020-21 tax return, you can still do so using the Which? tax calculator.

The online tool is jargon-free and easy to use; just enter your details and it'll tot up what you owe. Plus, it also suggests allowances and expenses you might have forgotten.

When you're ready, you can also use it to submit your return to HMRC.