Don’t delay in submitting and paying self-assessment tax

Whilst HMRC has announced that it is waiving late filing and late payment penalties on self-assessment tax returns for one month, those required to submit a self-assessment tax return are being urged not to use this as an excuse to delay.

Of the 12 million tax payers required to submit a tax return by 31st January, only around half had done so by 6th January, leading HMRC to issue the extension to the traditional end of January deadline.

However, in announcing the waiving of penalties until the end of February, effectively giving tax payers an extra month to submit and pay, HMRC also encouraged individuals to submit and pay on time if they can. Whilst penalties are being waived for this brief period, interest will continue to be calculated from 1st February, so if you can submit and settle before the traditional deadline it is prudent to do so.

Covid still having an impact

Aware that covid is still causing issues for individuals and their agents/accountants, HMRC hoped the extra time would give people the opportunity to meet their obligations without worrying about receiving a penalty.

The deadline to file and pay remains 31 January 2022. The penalty waivers will mean that:

  • anyone who cannot file their return by the 31 January deadline will not receive a late filing penalty, as long as they file online by 28 February
  • anyone who cannot pay their Self-Assessment tax by the 31 January deadline will not receive a late payment penalty if they pay their tax in full, or set up a Time to Pay arrangement, by 1 April 2022.

The existing Time to Pay service allows any individual or business who needs it the option to spread their tax payments over time. Self-Assessment taxpayers with up to £30,000 of tax debt can do this online once they have filed their return.

Back to back interest rate rises

With prices rising across the board, the Bank of England has stepped in to try and cool the market announcing an increase in interest rates. The rise, which is the second in three months and the first back to back increase in almost two decades, means interest rates will increase from their current 0.25% to 0.5%.

The move by the Monetary Policy Committee (MPC) came as the Chancellor was taking to the floor of the house of commons to announce a series of measures designed to offset in part, the hike in energy prices that Ofgem had announced just hours before.

Perfect storm for cost of living

The much anticipated announcement by Ofgem, means that the energy price cap – the maximum amount customers can be charged by energy companies on their standard (non fixed) tariff – has increased by 54%, adding almost £700 a year to people’s bills.

Combined with planned increases in National Insurance and rising costs elsewhere caused by supply shortages, higher wages and Brexit; the increase in energy costs creates a perfect storm for the cost of living and is likely to hit low and middle income families hardest.

Pressure on interest rates

There was always going to be pressure on the Bank of England to increase rates, which have remained at historically low levels since 2009, as they can help to temper volatile markets and offer some inflationary control. With inflation (CPI) expected to hover around 6% across 2022, peaking in April at more than 7%, there was even pressure from within the Banks own ranks for a bigger rise now. When the MPC met on 3rd February, Four out of Nine of its members voted to increase the main rate by 0.5% to 0.75%, in a bid to stave off more sustained inflation and price rises.

Whilst the decision was a smaller increase now, news of the pressure for an injection of pace to proceeding within the MPC, will give the markets a clear signal of the direction of travel. A return to the 5% interest rate levels seen before the financial crisis in 2009 is some way off and guidance from the MPC remains around smaller incremental steps, but the reality is this is likely to be the first in a series of those steps. Some have suggested we may see decisions on rate rises taken outside of the planned meetings of the MPC over the coming months, but at the very least, don’t be surprised if we see successive increases when the MPC does meet in 2022.

Crack down on second home tax relief

Second home owners that make their properties available for holiday rentals are being targeted under new rules outlined by the Levelling Up Secretary, Michael Gove. The change to the rules will specifically target those whose second homes are registered for business rates as they are let out for holiday rentals.

By identifying the property as a lettings property, rather than a main residence, owners can avoid paying council tax and instead register for business rates. They can then in turn claim small business rates relief, in some cases meaning they end up paying no rates at all. However, it is suggested that that some owners are using this loop hole but not using the property for lettings, either using it purely as a second home, or simply leaving it empty.

West Sussex homes under the spotlight

The new rules, which are set to come into force in April 2023, will mean those hoping to register for business rates have to prove that they let their properties for at least 70 days in a year. At present they are allowed to pay business rates if they make their property ‘available for letting’ for 140 days a year but are not required to evidence the fact. In addition to proving lettings, the availability clause will remain and owners will need to prove that the house is available for 140 days a year and successfully let for 70 of those days, to access the relief.

In announcing the changes on 14th January, Mr Gove was clear that they are targeting people who take advantage of the system to avoid paying their fair share towards local services in popular destinations such as Cornwall, Devon, the Lake District, Suffolk, West Sussex and the Isles of Scilly.

Providing evidence of holiday lettings

In order to qualify for small business rates relief on holiday letting second homes the property owners will have to provide evidence as part of the application process. Evidence will consist of a mix of marketing materials such as the website or brochure used to advertise the property and letting details and receipts.

Mr Gove explained that this was not about targeting those small business owners that legitimately let second or multiple homes for holiday rentals. It is those using a loophole for purely financial gain and who enjoy the benefits of the local services without making a fair contribution.