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What if my income is less than the Personal Allowance?

  • 3 min read
  • Last updated 6 Sep 2022

Was your income less than the Personal Allowance?

In the pandemic, a lot of the self-employed found themselves earning less than expected. Lockdown had a direct impact on their ability to work – from construction workers to tattoo artists to hospitality staff and more. As a result, this meant that many of you earned less than £12,500 (a.k.a the Personal Allowance in the 2020/21 tax year). And, consequently, lots of people didn’t plan to file their 2020/21 tax return.

But is this right?

What is the Personal Allowance?

The Personal Allowance is an Income Tax-free portion of your income. In the 2022/23 tax year that goes from 6th April 2022 to 5th April 2023, the Personal Allowance is the first £12,570 of your income.

You’re entitled to the Personal Allowance unless you earn more than £100,000 per year. At this point, you start to lose your entitlement £1 at a time.

Do I do a tax return if my income is less than the Personal Allowance?

In short, yes. You still do.

The only times you don’t need to do a tax return are in these two scenarios:

  • Your tax is already paid at source via PAYE
  • You earned less than £1,000

That said, even if one of these applies to you, you should still let HMRC know that you won’t be doing a tax return if you’re registered for Self Assessment. Otherwise they’ll be expecting you to declare your income – and they may look into your records to see why you didn’t.

And we can all agree, that sounds like a headache.

Do I pay National Insurance?

National Insurance entitles you to certain state-provided benefits. Here is some of what it includes:

  • State pension
  • Job Seeker’s Allowance
  • The NHS
  • The Maternity Allowance

Until Rishi Sunak’s mini budget in March 2022, National Insurance was taxable even if you earned less than £12,570. But from July 2022, the lower threshold will match the personal allowance, so you won’t owe National Insurance on your income is if you earn less than £12,570. Between April and July 2022, National Insurance will be taxed at 1.25% more than the 2021/22 rates, at lower thresholds.

What about SEISS?

If you claimed a SEISS government grant during the pandemic, this income is taxable like any other income. This means that even if you earned less than £1,000 in the tax year from your business, you will have to file a tax return to declare the SEISS income.

What happens if I don’t do a tax return? 

If you were supposed to do a tax return and you decided not to, you’ll be charged. HMRC will fine you for filing late (even if you don’t owe any money on your bill), for paying late, and you’ll be charged interest on top. A scary prospect.

1. Filing your tax return late

  • 1 day – 3 months late 👉🏽 £100 flat fee
  • 3 – 6 months late 👉🏿 £10 per day
  • 6 – 12 months 👉🏻 £300 flat fee or 5% of your bill (whichever is more)
  • >12 months 👉🏼 £300 flat fee or 5% of your bill (whichever is more)

2. Paying your bill late

  • 1 – 30 days late 👉🏽 no penalty
  • 30 days – 6 months late 👉🏿 5% of your tax bill
  • 6 – 12 months 👉🏻 10% of you tax bill
  • >12 months 👉🏼 15% of your tax bill

3. Interest on top, based on how late you are

  • 5th April 2022 👉🏻 3.25%
  • 7th April 2020 👉🏾 2.6%
  • 30th March 2020 👉🏽 2.75%
  • 21st August 2018 👉🏿 3.25%
  • 21st November 2017 👉🏻 3%
  • 23rd August 2016 👉🏼 2.75%
  • 29th September 2009 👉🏽 3%

Do note that you’ll only be charged late filing or payment penalties and interest if you’ve been issued a notice to file from HMRC. There’s no penalty for not filing a return if you owe no tax and HMRC hasn’t issued you a notice. Hooray!

Deadlines to remember

If you’ve not filed your tax return for the 2022/23 tax year, don’t worry! There’s still plenty of time to get it sorted. 

⏰ Make sure you file by 31st January 2024 ⏰ 

You’ll be charged on this date. The earlier you file, the more time you have to save for the bill. 

Is there any wiggle room with HMRC?

Luckily, yes. There are a few things you can do if you’re already late to file a previous tax return. The best thing to do is get in touch with HMRC. They can either set up a Time To Pay agreement with you (splitting your bill into more manageable chunks) or if you have a reasonable excuse for not paying, you may be able to appeal the penalties. 

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