Over a million freelancers, investors and landlords have failed to pay their tax bill on time, and could incur hefty fines and interest charges. It will come as a harsh financial blow to those who are already struggling financially after the negative impact of the pandemic.
It was already predicted that many freelancers and contractors would struggle to pay their tax bill, due to the financial pressure forced onto them by the pandemic. Many contractors have struggled to cover their financial losses whilst also trying to secure lucrative contracts that don’t fall within IR35 tax regulations. Many contractors have resorted to draining their savings to try and stay afloat in order to pay their tax liabilities.
The original deadline for tax bill payment was 31 January 2022. However, HMRC then granted leniency by extending the initial deadline for bill payment up until 28 February. Despite this deadline extension, 1.4 million tax payers have still been unable to pay within the time requirement.
This now means that they could face a £100 penalty fine as well as being charged 3% interest in addition to their initial tax liability figure. This inflated interest charge comes after two successive interest rate rises from the Bank of England over the last week.
Contractors who found that their contracts dried up during the pandemic will have lower earnings for the tax year, which will result in a reduced tax liability. Some contractors were eligible to receive financial assistance but this was limited to those with their own personal company. However, such assistance has proved to be a double edged sword as the loans provided need to be repaid with interest.
When considered in its entirety, it is no surprise that contractors are struggling with their self-assessment liability and paying their tax bill on time. With the cost of living rapidly increasing and gas prices rising, in addition to paying back a substantial tax bill, contractors could end up trapped in a tight financial vice.
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