Since 2020, HMRC – The UK’s tax, payment and customs authority has been lenient on late filing and waiving payment penalties. This is due to the financial difficulties and backlash many business owners and sole traders faced as a by-product of the Covid-19 pandemic. Now that we are officially three years past the announcement of the pandemic, HMRC is understandably returning to pre-pandemic demands and fees.
HMRC’s debt collection powers have “expanded over recent years”, – enabling them to recover directly from bank accounts, ask for security for tax debts, use bailiffs, and in some cases, seen to transfer a company’s liabilities to its directors [BDO].
In addition, the launch of the HMRC app in 2022 creates even more options for taxpayers to file their self-assessment without needing to navigate a website – instead, payments can be made directly from a smartphone!
Three years on, it would be natural to expect that businesses and sole traders would have recovered enough financially to afford to return to their usual payment schedules for their tax returns. Still, a cost of living crisis, redundancies and cutbacks can lead us to assume that businesses and sole traders alike have had to focus their finances elsewhere – and tax payment has taken a backseat.
BDO reported, “The number of people filing their tax returns over the Christmas period was down almost 30% versus last year, and HMRC’s warning that there are 5.7m people still yet to file their returns should be a wake-up call to many that they need to take prompt action.”
Due to there being so much leniency in the pandemic, HMRC has upped their interest rates which commenced on 6th January 2023, rising by 6%, which is the highest rate since November 2008 – which creates even more of a financial strain for the taxpayers who are still in debt to HMRC.
What do you need to know?
The statistics indicate that the UK’s total tax debt is £46.9bn, double the levels we experienced pre-pandemic, which was 19bn [LBN]. It would be an educated assumption that more businesses and sole traders that continue to waive payments or avoid in-full payments will most likely be liable to more than a 6% increase. Aggressive clawback techniques won’t be the only things that HMRC will look to implement in the coming years.
What is the solution?
The solution for businesses is to ensure that they have a strategic, affordable and well-designed strategy for repayment and that they have an excellent, engaged tax team (or individual) to execute it.
Particularly for businesses who have had to take advantage of the previous fee waivers offered by HMRC, you must invest in incredible tax professionals to get you back on track as we enter a new financial year.