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70% of sole traders in the dark about tax bills

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With the self-assessment income tax deadline upon us, research has shown that four in ten (39.2%) sole traders are yet to file and pay their tax bill, with the vast majority of this group (72.5%) admitting they do not know the amount that must be paid by midnight on 31st January. 

Amid 40-year high inflation and rising taxes, most (60%) of the self-employed workers who have not completed their tax return said they plan to pay HMRC by taking money from their savings – this is despite nearly three in four not knowing the amount payable. 

The study, paints a concerning picture if it is a trend reflected by the 4.2m self-employed workers in the UK, according to online accounting firm, Crunch, and self-employed insurer Qdos, who carried out the research.

Of those who have filed and completed their self-assessment, which accounted for 60.8% of these workers, nearly all (96.8%) paid in full. Just 3.2% have organised a time-to-pay arrangement with HMRC. But this number could rise.

What happens if you miss the tax filing deadline?

Should an individual miss the 31st January deadline, HMRC will issue a late filing penalty of £100 if the tax return is up to 3 months late, with fines increasing after this point. Interest payments are charged on late payments. 

“There are two ways to look at this research,” said Darren Fell, founder of Crunch. “On one hand, the fact that most self-employed workers have filed and paid their tax bills is good news – particularly at a time when independent workers continue to bear the brunt of the economic downturn,” he said.

But my worry is that a significant number – nearly half, in fact– of small business owners are in the dark about their self-assessment. Most plan to take money from their savings to settle up with HMRC, but the vast majority don’t know how much they owe. 

Darren Fell, founder of Crunch

“At the best of times, it’s vital that self-employed workers have clarity over their tax position,” said Fell. The sooner this is achieved, the sooner an individual can either pay their tax bill in full or arrange a time to pay,” he said.

Seb Maley, Qdos CEO, sympathised with the self-employed who have been grappling with the ever-rising costs of doing business with other challenges of running your own business.

“You can’t help but sympathise with the self-employed after a tough couple of years,” said Maley.

Maley said that right now, many small business owners are struggling to pay their tax bills while “the former Chancellor of all people is under pressure to resign over his own tax affairs”.

Maley said that lenient times are over: “The government took a more lenient approach during Covid – and HMRC removed late payment penalties for a month to give people a little breathing space – but this isn’t the case anymore. Put simply, the Treasury is desperate to raise tax revenue. 

“Added to this, along with fines for missing the deadline and interest charged on the outstanding amount, the longer a tax bill goes unpaid, the higher the risk of an individual being investigated by HMRC,” said Maley.

How to know how much tax you owe six months in advance

If you have a business banking account that can create CSV files for your accountant or whoever does your bookkeeping and tax filing, then you probably have a lot of the account information you need to start filing your tax return this summer. Why wait? You can even ask your accountant to start the process so you know how much you have to save up or set aside each month, especially if you have had some challenges such as rising costs, a loss of a client or late paying clients.

“It is a shame that Making Tax Digital for Income Tax Self-Assessment (MTD ITSA) has been delayed until 2026 as this will give taxpayers much better insight into their liabilities in real-time, despite the added administrative burden it will cause, which will help to budget throughout the year,” said Chloe Moss a Direcor of Tunstall Accouning.

“If your business is growing it can be difficult to know how much to save towards your year-end tax bill,” said Moss, “but if you keep on top of your bookkeeping you can estimate your current liability based on your profits for the year so far, or appoint an accountant to do this for you.”

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