Tax deadline: why more people are falling behind on their taxes

The amount owed to HMRC by late taxpayers keeps rising each tax year. We look at why this is happening and explain how the taxman is hardly helping after it was accused of 'making up figures' to scare people.

For many of us, seeing a letter drop through the letterbox bearing the HM Revenue & Customs logo leads to a sinking feeling.

Few of us expect to open it to find that the taxman is handing us back cash ‒ it’s more likely that due to some form of error we will have underpaid on our tax and need to cough up a bit more in the months to come.

What’s more, new figures have revealed that increasing numbers of taxpayers ‒ especially those who work for themselves ‒ are in debt to the taxman.

While this mostly falls at the feet of taxpayers, a recent court case has highlighted how HMRC is hardly helping matters, having been accused of effectively 'making up figures' to scare people into action.

The rising amount we owe

According to data released in response to a Freedom of Information request, the taxman is owed £1.6 billion so far in late payments from people who missed the 31 January 2019 Self Assessment deadline for the 2017/18 tax year.

UHY Hacker Young, which made the request, predicted that it would eventually surpass the £1.83 billion owed the previous year as more late taxpayers file.

It also noted that the amount taxpayers owe in late payments has been steadily rising over the last few years, coming in at £1.65 billion in 2014/15 and £1.76 billion in 205/16.

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Can’t pay, won’t pay

There seem to be a host of different factors behind the tardiness of people who file Self Assessments ‒ generally the self-employed ‒ in handing over the money they owe.

The first is that there has been a big rise in the number of people working for themselves.

The most recent data from the Office for National Statistics suggests that around 4.8 million people are now self-employed, compared to just 3.3 million in 2001.

The emergence of the gig economy has certainly helped in this respect, but equally, there are plenty of people who want to take a bit more control over their work patterns. I know, I’m one of them.

The trouble is that if you don’t get an accountant to handle your tax return for you, you’re left to navigate your way through filing your Self Assessment online.

And having done it a few times now, it’s fair to say that it’s not exactly a straightforward process, even for someone who has been writing about money for more than a decade. 

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Paid on time? Don’t make me laugh

Another issue highlighted by UHY Hacker Young is that the self-employed are particularly at risk of cash flow issues, which may make it difficult for them to pay their bill, even if they manage to make sense of HMRC’s online system.

Neela Chauhan, partner at the firm, said that taxpayers face a “lose-lose scenario” if they find it hard to pay, having to choose between paying the full amount on time “risking the long-term health of their business or career because of the hit on their cashflow, or accept a potentially hefty fine further down the line”.

The fact is that millions of self-employed people are constantly chasing up late payments.

According to the Federation of Small Businesses, small firms ‒ often sole traders like me ‒ are owed an average of more than £6,000 in late payments, with more than a third ending up in cashflow bother as a result.

Just last month I had to dip into my savings in order to pay the mortgage on time because so many different people were late in paying the money owed to me, with often the most pathetic of excuses (“The guy in accounts is on holiday”).

I’m fortunate in that I have savings separate from an account where I keep my tax money.

But there are lots of people who don’t have that additional safety net and so have to use some of that tax money to cover their essentials, simply because people don’t pay on time.

And if that money has gone on the mortgage or the food shop, then it can’t also go to the taxman, at least until those late payers have got their act together.

A more aggressive approach

Another interesting nugget in the Freedom of Information data surrounds the cancelling of penalties issued for paying your tax bill late.

The number of late payment penalties that were eventually cancelled dropped marginally from 23% in 2015/16 to 22% in 2016/17.

This suggests the Government is taking a stricter approach to reclaiming tax it is owed.

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Making up figures to scare people

It’s worth noting that, while the taxman is out of pocket as a result of our underpayment, it is also engaging in some pretty unsavoury antics in order to push taxpayers to cough up cash.

This week a judge slammed HMRC, accusing it of plucking figures out of the air in order to terrorise people it believes needs to repay cash.

It followed a case where Sebastian Cussens was issued with Income Tax assessments worth more than £270,000, plus £70,000 in penalties, as it believed he had been a sole trader profiting from buying and selling second-hand cars. 

Cussens had been receiving enhanced Employment and Support Allowance, a benefit paid to people unable to work because of mental or physical ailments.

HMRC’s judgement that he was making a 50% profit margin was dismissed as “wild, extravagant and unreasonable”, while the judge accused the taxman of deliberately issuing huge tax assessments in order to shock Cussens into co-operating.

That the taxman is apparently engaging in such 'shock and awe' tactics should be deeply concerning to us all. We should only be issued with demands for what's fair, not punishing and exaggerated bills in an effort to scare us into line.

Do you have to file a Self Assessment tax return? Have you ever missed the deadline? Share your personal experience in the comments section below.