Archive: 16th January 2025

Penalties for late filing of tax returns

HMRC reports over 63,000 taxpayers filed their returns over the New Year, but 5.4 million still need to act before the looming 31 January 2025 deadline. File now to avoid penalties, pay your 2023-24 tax, and set up payment plans if needed to stay compliant.

The deadline for submitting your 2023-24 self-assessment tax return online is fast approaching—31 January 2025. This date is not just for filing your return; you also need to pay any tax due by this time. This includes settling any remaining tax from the 2023-24 tax year, plus the first payment on account for the 2024-25 tax year. It’s crucial to remember this deadline to avoid penalties.

If you miss the deadline, be aware of the penalties that can arise. The first penalty is an automatic £100 charge, which you will incur even if you do not owe any tax or if you have paid on time. If your return is still late after 3 months, you will face daily penalties of £10 per day, which can add up to a maximum of £900. After 6 months, another penalty kicks in, which is either 5% of the tax you owe or £300, whichever is greater. Then, if you are still late after 12 months, you will face another penalty of 5% of the tax due or £300, whichever is greater.

On top of these filing penalties, there are also penalties for late payment. If you do not pay your tax bill on time, HMRC charges 5% of the unpaid tax at 30 days, 6 months, and again at 12 months. Interest will also be charged on any outstanding amount.

If you are struggling to pay your tax, there is an option to set up a payment plan online, where you can spread the cost of what’s due by 31 January 2025 over up to 12 months. This option is available for debts up to £30,000, but you will need to set up the plan no later than 60 days after the due date. It is a good idea to set it up sooner rather than later because if your tax is still outstanding on 1 April 2025 and you have not made arrangements, you will face an additional 5% late payment penalty.

If you owe more than £30,000 or need longer than 12 months to pay, you can still apply for a time to pay arrangement, but you will not be able to do this through the online service. Make sure to file your return and pay on time to avoid these costly penalties.

Is your trade in goods or services a business

Selling goods or services? It’s vital to know if HMRC considers this a business. From regular sales to earning commissions, their rules on ‘trading’ impact your tax obligations. Here’s a simple guide to help you stay compliant and avoid pitfalls.

If you are selling goods or services, you need to determine whether this constitutes a business. According to HMRC’s guidance, you are required to establish a business if you 'trade' in goods or services.

While not an exhaustive list, HMRC suggests you are likely to be considered as trading if you:

• sell regularly to make a profit
• make items to sell for profit
• sell items on a regular basis, either online, at car boot sales or through classified adverts
• earn commission from selling goods for other people
• are paid for a service you provide

If you only occasionally sell items then you are probably not trading. However, there is no statutory definition of ‘trade.’ The only statutory clarification is that ‘trade’ encompasses a ‘venture in the nature of trade.’ Consequently, the courts have defined what constitutes a ‘trade’ through their rulings, which serve as guidance when disputes arise.

In complex cases, HMRC may use 'badges of trade' tests to assess whether an activity is a legitimate business or just a money-making by-product of a hobby. While not definitive, these tests will help HMRC make this determination. In most cases, it will be clear if your trade in goods or services is a business.

What expenses can be claimed against rental income

Are you a landlord? Maximise your rental income by knowing which expenses you can claim to reduce your tax bill. From maintenance costs to Replacement of Domestic Item Relief, understanding allowable deductions is key to smart property management.

If you are a landlord, it is important to be aware of the expenses that can and cannot be claimed from rental income. As a general rule, allowable expenses must be wholly and exclusively for the purpose of renting out the property. In some cases, a proportion of expenses can be claimed if part of the expense relates to the property business.

Common types of deductible revenue expenditure include:

• General maintenance and repairs to the property (but not improvements).
• Water rates, council tax, gas, and electricity.
• Insurance costs.
• Letting agent and management fees.
• Qualifying legal and accountancy fees.
• Direct costs such as phone calls, stationery, and advertising for new tenants.
• Vehicle running costs (only the proportion used for the rental business), including mileage rate deductions for business-related motoring costs.

Additionally, the Replacement of Domestic Item Relief allows landlords to claim tax relief when replacing furniture, furnishings, appliances, and kitchenware in a rented property, provided certain conditions are met.

Landlords should also keep a record of any capital expenditure incurred on investment properties. These expenses cannot be claimed as revenue expenditure against rental income but can usually be offset against Capital Gains Tax when selling a property.