COVID-19 grants should be declared in future tax returns, despite nearly half of self-employed workers saying they don’t need to.
With the self-assessment deadline only weeks away, any government support received during the pandemic must be included in 2020/21 tax returns, under HMRC rules.
Emergency financial support, such as the Self-Employment Income Support Scheme (SEISS) and Small Business Grant Fund (SBGF), are subject to Income Tax and Self-Employed National Insurance.
However, 46% of sole traders have admitted that they thought they wouldn’t have to include coronavirus-related grants in any tax returns. This could leave them open to potential penalties from HMRC, as a result of failing to include all sources of income.
Mike Parkes, Technical Director at GoSimpleTax, which conducted the survey, said: “It’s essential to understand the implications and tax liabilities that come with these emergency measures.
“While it’s next year’s tax bill that will be dominated by Coronavirus, it will pay to get ahead of the curve. Firstly, you should complete your 2019/20 tax return and submit it to HMRC as soon as possible. You can also start compiling your 2020/21 tax return. This will give you a good understanding of next year’s potential tax bill, so you have plenty of warning and less chance of unexpected costs.”
According to the research, the most common mistakes made by people when submitting their self-assessment tax returns are assuming you don’t have to declare something if you’ve not made a profit; ticking the wrong boxes; and putting the wrong information down. Fines handed out by HMRC relating to self-assessment tax returns have reached 10s of millions of pounds in recent years.
Parkes added: “Under the current system, HMRC will allow you submit your tax return and then make a resubmission before the next filing deadline of the year after. For example, if you’re submitting your tax return on 31 January 2021, you have until 31 January 2022 to amend anything you need. After this period of time, you’ll need to write to HMRC to explain the circumstances and request a change.
“However, it’s important to note that this too comes with financial penalties if HMRC deems your submission to be careless and deliberately incorrect. Penalties are based on the amount of tax you owe, and are payable in addition to your tax bill.
HMRC has announced that it intends to allow people to appeal against a financial penalty if they file a late tax return due to Coronavirus-related issues.
Parkes said: “It comes as little surprise that HMRC has announced a further dispensation due to the Coronavirus. However, it’s important to note that people will still be fined for filing late self-assessment tax returns, but will now have an opportunity to appeal if they have a ‘reasonable excuse’ as a result of pandemic-related personal or business disruption.
“With no clear guidance on what a ‘reasonable excuse’ may be – with HMRC simply stating that it will deal with each appeal on a case-by-case basis – the message is still very much to submit your tax return on time by 31st January deadline. The tax authority is reportedly looking at ways to make the appeals process quicker and easier but, in the meantime, you will still receive a letter from HMRC about the fine, which will state how you can appeal within three months of the penalty date.
“If you cannot pay your self-assessment tax bill, you might be able to set up a Time to Pay Arrangement with HMRC. This lets you spread the cost of your tax bill by paying what you owe through affordable monthly payments based on your income and expenditure.”