The self-assessment countdown is well underway, and hundreds of thousands of taxpayers needlessly pay automatic fines every year for failing to file their returns on time.
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According to HM Revenue & Customs (HMRC), 1.3 million people missed the deadline of midnight on January 31 last year, generating a massive £130 million in fines.
Tax rules say that even if you have no tax to pay or are owed a refund, if you have been requested to file a return and miss the deadline, you will have to pay the £100 fine.
However, if taxpayers cleverly play the rules, they can avoid fines even if they do not have all the information to hand in to post a complete return online.
Tax professionals, such as accountants, play the game all the time for their clients.
It’s not illegal, just a smart way of applying the rules.
Playing the rules
A huge number of the taxpayers who fail to file their returns leave things too late to collect all the financial information they need to calculate if they owe any tax.
They then take the £100 in their bank balance to buy some extra time – when that extra time can be purchased for free.
So how does this trick work?
It’s simple. File a tax return with as many complete figures as you can and pay the amount of tax you think you owe.
This stops the computer system from generating automatic penalties and freezes interest and penalties on late tax payments.
In the additional information box on the main tax return, don’t forget to note that the figures in some boxes are estimates. To make absolutely clear what you mean, give the page, box numbers and amounts and a reason why you have estimated the figures.
Add a date when you expect to have the final figures.
When you have the final figures, go back into your return online and update the boxes.
This may mean you have over or underpaid tax, but do not worry. HMRC will issue a statement of account detailing the new tax amount and any interest due if any.
Just pay the bill or claim the refund, and that’s it.
Tax management rules allow you to adjust your self-assessment return online up to January 31 in the year following the filing deadline for that tax year without penalty.
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