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Payment of Tax: Automatic Interest and Surcharges: Surcharges on Unpaid Income Tax and Capital Gains Tax

 

A surcharge will arise on any tax paid late.

 

The Self Assessment system is based on voluntary compliance.  So it is essential that those taxpayers who pay the right amount of tax at the right time feel confident that the system does not reward non-compliance in any way.

 

However, the interest charged on late payments is not a penalty.  It is designed to cancel the immediate financial advantage for those who pay late over those who pay on time.

 

So, in addition to any interest that may arise on tax paid late there is also a scheme of surcharges to encourage prompt payment.  A surcharge is payable in respect of any tax (including capital gains tax or Student Loan repayments) which:

 

• Is shown as due in any self assessment (whether calculated by the taxpayer or HMRC) but which is not covered by any payment on account or balancing payments made.

• In the context of a formal enquiry is shown as due in an amended self assessment, or discovery assessment, but which is not postponed pending an appeal.

The surcharge is also payable on any Class 4 NICs unpaid as if it were income tax.

 

The initial surcharge is 5% of any tax unpaid after 28 days.

 

Where a balancing payment or payment on account is still unpaid more than 28 days from the due date for that year’s balancing payment a surcharge automatically arises.  This initial surcharge is equal to 5% of the tax unpaid at that date.

 

There will always be some taxpayers who intend to pay on time but, for some genuine reason, fail to do so.  The 28-day period before a surcharge arises ensures that these taxpayers do not incur such a charge.

 

There may also be some taxpayers who, having calculated their final liability for a tax year, realise that they will have insufficient funds to pay the balance due at the due date.  The 28-day period gives these taxpayers time to contact HMRC to arrange a suitable scheme of payment.

 

There is an additional 5% surcharge on tax still unpaid after six months.

 

Any tax that remains unpaid more than six months from the due date for payment is subject to a further surcharge.  This further surcharge is again equal to 5% of the unpaid tax.

 

The stepped surcharge is intended to provide an increasing incentive to pay tax that is late and to ensure that the tax due for one tax year is paid before the final tax due for the subsequent year.