As the annual tax return deadline draws near and HMRC introduces a new penalty system for VAT, a survey has revealed significant tax knowledge gaps among sole traders.
Three-quarters of sole traders polled by card payments provider Takepayments are unsure of the current tax thresholds that apply to them; specifically, 75% of sole traders don't know at what earnings threshold they'll pay a higher tax rate of 40% (£50,271).
Worryingly, just 9% of those polled know what could happen if they don't pay their tax bill: one in 50 said that they thought nothing would happen at all.
The findings also show that only 31% of sole traders know when they need to submit their self-assessment tax form (31 January) and 73% of sole traders mistakenly believe that they need to pay corporation tax in the same way that limited liability companies do. The findings come as HMRC introduces a new points-based penalty system for late VAT returns and payments.
Takepayments has launched a free tax calculator to help business owners work out how much tax and VAT they have to pay.
"It's not surprising that many small business owners are unsure of the legal obligations they have regarding things like tax and VAT. The rules can be quite difficult to understand, especially if you just want to focus on growing your business." Jodie Wilkinson, head of strategic partnerships at Takepayments
New penalty system for late VAT payments
HMRC has introduced a new VAT late payment penalty system which will replace the default surcharge system for VAT periods starting on or after 1 January 2023. There will also be changes to how VAT Interest is calculated and any nil or repayment VAT returns received late will be subject to late submission penalty points and financial penalties.
Penalties will work on a points-based system. For each VAT return you submit late, you will receive one late submission penalty point. Once a penalty threshold is reached, you will receive a £200 penalty and a further £200 penalty for each subsequent late submission. You will not be charged a penalty if you pay the VAT you owe in full or agree a payment plan on or between days 1 and 15.
To give tax payers time to get used to the changes, HMRC will not be charging a first late payment penalty for the first year from 1 January 2023 until 31 December 2023, if you pay in full within 30 days of your payment due date.
Have you filed your 2021-2022 tax return?
Almost 5.7 million customers are still to file their tax return according to HMRC (as of Tuesday 3 January). More than 12 million customers are expected to file a tax return for the 2021 to 2022
tax year by 31 January 2023. HMRC is warning customers that the deadline to submit a paper return has passed and tax returns can only be submitted online. Anyone who files after 31 January may face a penalty.
Myrtle Lloyd, HMRC's director general for customer services, said: "There is less than one month for customers to submit their tax returns and my message to those yet to start is: don't delay, do it online."
Written by Rachel Miller.