When is it okay for a freelancer not to submit a tax return? Is a wasp a good excuse? Are HMRC heretics? Find out in this instalment of the Coconut blog.
When is it okay not to pay tax? Never. But when is it okay not to submit a tax return? That is a little more complicated…For the past few years, HMRC have released a list of the worst, or most unusual, excuses they received for late tax return submissions. These include such wonders as:
The purpose of these lists is to remind people that HMRC ‘will not accept spurious excuses,’ but ‘do recognise that a number taxpayers may have difficulties completing their tax return on time.’ Take the example of the wasp above. That’s just silly. But being in a legitimate car crash, or unexpectedly suffering from some other unforeseen event would be acceptable.
Which? list fires, the death of a partner or computer failure as other reasonable excuses. When large parts of the UK were seriously affected by flooding, HMRC specifically mentioned that exceptions would be made for those affected by the floods. But all of these are decided on case-by-case basis. And, fundamentally, are excuses for late returns. If you’re meant to submit one, you’ll still have to. Eventually. However…You don’t need to submit at all if you aren’t required to.If you’re in full-time employment and have no other source of income (why you’re on a freelance site I don’t know, but, hey, all are welcome!) you’re probably part of the pay as you earn (PAYE) scheme. So your employer takes your tax out of your monthly pay cheque. No tax return needed.Likewise, if you’re earning under £11,000 a year – regardless of how you earn it – no tax return needed.If you’re in full-time employment, but do earn additional income – say, through doing some freelance work on the side – you should, in theory, be required to file a tax return. You have, after all, earned extra income which has not been taxed.However, as an HMRC spokesperson told The Telegraph in 2015: “we don’t want anyone to fill in a tax return unless it’s absolutely necessary.” And, believe it or not, they aren’t kidding.If you earn an extra income of under £3,000, you can pay tax on it through your PAYE code. You’ll have to phone them, which can be a quest unto itself, but you won’t need to register to file a tax return.This can be a blessing, as once you register you will always have to return one – even if you made no additional money outside of your full-time job that year. And it’s much harder remembering to fill out something simply for the sake of it.But you’ll still be fined for a late submission, even if you owe them nothing.People don’t like the people who take their money: even the Bible makes a big deal of Jesus mingling with a tax collector. They’ve never been popular. But HMRC aren’t demons. If you’re self-employed and earning more than £11,000, you’re filling in a tax return. But if something terrible happens, let them know. And make sure you get it to them as soon as you can.
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As part of HMRC’s Making Tax Digital, sole traders will soon be required to complete 4 tax submissions per year instead of 1.
Take a look at the latest sole trader tax rates for the 2021/22 as well as our advice on how to prepare for the new tax year.