Unexpected Self-Assessment Charges New Taxpayers Should Know About

Starting Self Assessment for the first time can be a bit confusing. You may think you only need to understand how much tax you owe and pay by the deadline. In reality, your first bill includes several different charges or payments that you may not have expected. Some are part of how Self Assessment works, while others happen because you file or pay late.

Knowing what these charges mean can make a big difference. You can put money aside in advance, understand what HMRC is asking you to pay and avoid unnecessary costs. So, if you want to know what charges can surprise you at the end, keep scrolling down!

New to Self-Assessment? These Charges Could Come as a Surprise

Payments on Account

Payments on account are advance payments towards your next year’s tax bill. They can be one of the biggest surprises when you file your first Self Assessment return because they can make the January payment much larger than expected. Each payment is normally half of your previous year’s tax bill. One is due by 31 January and the other by 31 July. They generally apply when your Self Assessment tax bill is more than £1,000, although there are exceptions.

Before your first payment, make sure you know:

1. How much tax you owe for the current year
2. How much you may need to pay towards the next year
3. When each payment is due
4. Whether your income is likely to change significantly

This is especially important if you have recently moved from employment to self-employment. You may be used to having tax taken from your salary automatically, so having to put money aside for your own tax bill can take some getting used to.

Balancing Payment

A balancing payment is the amount left to pay when your payments on account do not cover your actual tax bill for the year. This can happen when your income increases or your final tax liability is higher than the previous year’s estimate. Imagine you paid £2,000 in January and another £2,000 in July as payments on account. If your final tax bill turns out to be £5,000, you would still have £1,000 to pay as a balancing payment. This amount is normally due by 31 January.

It is particularly important to remember this if your income changes from year to year. A strong year for freelance work or business income can leave you with a higher balancing payment than you expected.

Late Filing Penalty

If you do not submit your self-assessment tax Edinburgh by the deadline, HMRC can charge a penalty. The initial penalty is normally £100, even if there is no tax to pay or you have already paid the tax you owe. Further penalties can apply if the return remains outstanding:

1. Daily penalties can start after three months.
2. Additional penalties can apply after six months.
3. Further penalties can apply after twelve months.

Leaving your return until the last few days also gives you less time to check your figures. If you cannot find an invoice or bank statement, you may end up rushing the return and making an avoidable mistake.

Interest on Late Tax

Interest is another cost you need to keep in mind if your tax payment is late. HMRC charges interest on unpaid tax, so the amount you owe can continue to increase while the payment remains outstanding.

This can be easy to overlook because interest is not necessarily part of the original tax calculation. You might have worked out your tax bill correctly but still owe more later because the payment was not made on time. If you are struggling to pay, it is better to look at your options rather than simply allowing the bill to sit unpaid.

Interest on Late Payments on Account

Payments on account have their own deadlines, so late payments can also result in interest. This matters if you have budgeted for your main January tax bill but forgotten that the payment on account is due at the same time.

The safest approach is to look at your HMRC account and make a note of each amount due. Do not rely only on the figure from your previous tax return. Your account can show different amounts, including your balancing payment and payments on account, so check what each figure represents.

Penalties for Inaccurate Returns

Another cost can arise if you submit an inaccurate tax return. This is different from making a genuine mistake that you correct when you find it. HMRC can charge penalties where an inaccurate return results in tax being understated, depending on the circumstances and whether the error was careless, deliberate or deliberate and concealed.

This is one reason you should not guess figures just to get your return submitted. Check your income, expenses and other information carefully. If you later discover an error, deal with it rather than leaving it uncorrected.

Repayment Interest or Tax Credits

Not every unexpected figure on your Self Assessment account is a charge. You may also see adjustments, repayments or amounts connected with other tax calculations. If something does not make sense, check the explanation rather than assuming it is another amount you have to pay.

This is especially useful when you have changed jobs, started freelancing, received income from different sources or had tax collected through PAYE during the year. Your Self Assessment calculation takes your overall tax position into account, so the final figure may not look like a simple percentage of your self-employed income.

Plan Before You File

Your first Self Assessment bill can contain more than the tax you originally calculated. The good news is that most surprises can be avoided with a little preparation. Keep your records up to date, understand your deadlines and check your HMRC account before making assumptions about what you owe. That way, your first Self Assessment experience is much easier to manage.