“PERFECT STORM” RISK FOR 1.3M SELF-EMPLOYED

More than one million self-employed people could face a “perfect storm” if they don’t file tax returns early, experts have warned.

A report by Contractor Weekly quotes a new survey which has warned tax bills could spiral if the self-employed defer payments.

Burden

The COVID-19 pandemic has placed the UK’s 4.5 million freelancers, contractors and self-employed workers under huge financial burden, with many facing higher than usual tax bills.

This has led to large numbers considering deferring tax bills.

Spiral

Contractor Weekly reports a survey by TaxScouts, an online tax platform, that says 27% of self-employed taxpayers have said the pandemic has made them more likely to delay their upcoming tax return. This, the survey warns, could lead to the cost of deferring taxes spiralling.

Contractor Weekly reports this would mean around 1.3 million people risk fines, Typically, anyone who misses the January 31 deadline is fined £100 by HMRC, which adds extra penalties to those who continuously fail to pay this tax.

Penalise

However, the website quotes HMRC Chief Executive Jim Harra as saying those who file their self-assessment late this year won’t be penalised

Contractor Weekly says Harra has urged small companies to contact Companies House and ask for exemptions from penalties if they can’t meet a deadline.

Stressful

Contractor Weekly adds that the survey revealed around one million self-employed people missed the January 31 deadline earlier this year. It said 62% admitted that they put off doing their self-assessment because they don’t enjoy completing it and 47% found the process stressful.

The website continues by saying the research showed that 44% of self-employed people found themselves procrastinating when sorting their tax return. A further three in 10 said they wait until January to file it, with 45% of those leaving it until the final week before the deadline.

Indeed, 6% plan to sort it on deadline day.

Cash flow

Contractor Weekly says experts have warned that leaving tax returns to the last minute could lead to cash-flow issues, as many freelancers and contractors have had their earnings diminished by the pandemic crisis and do not qualify fully or at all for the government support schemes.

The website says Mart Abramov, CEO at TaxScouts, is urging the self-employed to file their taxes early this year so they know exactly what they owe in 2021.

Perfect storm

It quotes him as saying: “We’re anticipating to see a number of larger than expected tax bills hit the self-employed in 2021 due to a piling up of the deferred tax payments from 2020, and the first advanced tax payments in January.”

“Combine this with the financial impact of the ongoing pandemic on the self-employed and our tendencies to delay our tax returns until the very last minute and we could have a perfect storm.

“The welcome news is that there are ways to manage tax payments to help with cash flow in 2021, if acted upon early.

“[…] Being better informed about the tax you owe will make the process less stressful and give you the control to make the necessary changes to your payments and budgets as we head into another uncertain year.”

More information

You can read the full article on Contractor Weekly.

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