An awful lot of BIG numbers

Welcome to this week’s The Wonderful World of Tax Newsletter, and as always in the sphere of personal tax there is plenty to report, and surprisingly not all of it revolves around that annual date in all our calendars the 31st of January tax return deadline.

Although, I often talk about the £100 late filing penalty there is a bigger undiscussed issue that many do not consider “late payment interest”, and combined with late submissions are HMRC about to receive a windfall?

And, the burning question did you receive an increase in your take home pay this month?

Paying on time

Over the years taxpayers have focused on the penalties of not submitting a tax return on time, however, this year sees a sharp increase in the amount of interest HMRC charge for late payments.

Interest on late payments has risen to a staggering 7.75%, compared to this time last year when the rate was moderately low at 6%. Although more interestingly the rate has not been anywhere as high as this since January 2008 when it was 7.5% following a fall from 8.5% in the previous August (2007). The 16 year high has been preceded by a period of low rates, with the lowest rate being 2.5% between 24th March 2009 and 29th September 2009.

Combine this with the potential of a 5% or £300 late payment penalty, whichever is the higher of the outstanding balance then the payment of tax becomes a significant issue.

Interest has been put in place by HMRC to ensure those not paying there tax on time do not receive a competitive advantage, as the rate has been set at 2.5% above the Bank of England base rate.

For those of you who have overpaid your tax, then you will receive repayment interest of 4.25% on your overpayment.

For anyone who requires assistance in paying HMRC then you can set up a payment plan online if you meet the required criteria.

The increased amount is surely to catch many out, so please be aware of this hidden penalty and take the appropriate action.

Time is running out

You may remember that at the start of the month HMRC announce that 5.7 million tax returns remained outstanding, however, in a press release last week it was announced that the current amount was closer to 3.8 million.  Myrtle Lloyd, HMRC’s director general for customer services, said: “now is the time to take action and get your return done.”

I have a feeling many taxpayers already know this, but unfortunately its not that simple.  HMRC are increasingly relying on online tools to answer queries, to move both customers and agents away from calling the helplines. That said the online tools do not in most cases answer the queries and therefore there is no alternative but to call.

With recent restrictions to agents on the questions that can be raised on the helplines, combined with the ever-increasing wait times (I called last week and waited 50 mins for an answer) the inefficiencies at HMRC could result in a an increase in unsubmitted tax returns and a windfall in revenue collected from penalties.

This is a very different to the story of last year when it was reported that there was a significant fall in late submitted tax returns with the total amount being estimated at 600,000.

Could we see this figure rise significantly this year? Will HMRC software be able to accommodate a high volume of transactions (3.8 million) in the remaining days and will taxpayers have been able to obtain the support and information they require from HMRC to file before midnight?

As they say in all the best dramas “To Be Continued Next Time”.

Did you get a pay rise this month?

Back in November at the Autumn Statement the chancellor announced a tax cut or rather an a National Insurance cut that would take place from January 2024. The cut to National Insurance contributions made by employees dropped from 12% to 10% and was a pleasant surprise, for many on pay day.

This Ni cut translates to an average annual saving of £304 for basic-rate taxpayers.

But will everyone see a direct pay rise on their payslips? Not quite. The change happens before income tax is deducted, so they won't see a specific "NI rise" line. However, they'll keep more of their hard-earned cash. For someone on an average salary of £35,400, this translates to roughly £450 extra in their pockets annually.

While not a traditional pay rise, it's certainly a welcome boost to take-home pay. This cut, alongside the freezing of the lower earnings limit, eases the tax burden on low and middle-income earners.

It's important to note that this only applies to the main employee NI rate (Class 1 contributions). Other contributions, like those for higher earners, remain unchanged.

Overall, the NI cut is a positive step towards increasing disposable income for millions of employees. While not a direct pay rise, it translates to more money in their pockets, potentially freeing up funds for essential needs or even a little extra spending.

Tax Tip

As you might expect the month of January is not the time to start making videos on Tax, that said watch out in February and March as I will be updating my YouTube channel, are you following it yet?

Not all the questions I have received this moth revolve around tax return deadlines. I have had numerous questions this month around Restricted Share Units RSUs, and therefore I am working on some blogs to delve deeper in to this complex area which can cause much confusion. If this issue effects you have a look at the post on the subject - Do you pay Tax on Restricted Stock Unit (RSU)?

Capital Gains Tax is never a subject to far away and with many still asking do you pay CGT when you sell your home I made this video last year which will hopefully help with that question.

Pleases remember to LIKE, COMMENT and SUBSCRIBE to the channel.

As I mentioned there are more videos on the way, so if you have any questions you would like answered please send me a DM or send me email at jreeves@taxmatters.tax

Keep in touch

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Why not follow the Wonderful World of Tax on Spotify and discover what I am listening to in the office this week.

Keeping with the 1980s theme of last week, I thought I would make it Soul Anthems playlist, yest they really did make some great Soul records in the eighties.

Thank you for your time, and if you think I might be able to assist you a friend or family member, either DM or contact me on jreeves@taxmatters.tax 01442 828006.