Steven Mugglestone

The more I learn, the less I know

HMRC seeking 100% penalties for late Tax Returns, resistance is useless & the world recession is not an excuse for having no money

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HMRC seeking 100% penalties for late Tax Returns, resistance is useless & the world recession is not an excuse for having no money

Some clients complain that we badger and moan (politely) at them for their tax return information, but we do this for good reason.

H M Revenue & Customs (HMRC) is now looking to introduce new increased, and some say far more draconian, penalties for late submission of tax returns and for the late payment of tax.  In some cases the penalties may be up to 100% of the tax shown on the Return.  There is, therefore, an incentive to ensure that you pay tax on time and submit your tax returns on time, which is why we carry out the gentle badgering.  Late Tax Return penalties for partnerships may also prove to be an expense for each partner as they will be charged a penalty each rather than there being one penalty for the partnership itself.

The changes are part of the numerous changes that have been made in recent years to the UK’s tax administration legislation including:

  • Increased HMRC powers for obtaining information and inspecting business records,
  • Increased penalties for errors and the introduction of rules to enable HMRC to publish the names and details of those who are charged a penalty for deliberately evading tax
  • Increased task forces and “own up and pay up” amnesties for a variety of sectors including plumbers, electricians, tutors, doctors and landlords
  • The new penalties, however, for late submission of tax returns and late payment of tax have the potential to affect the greatest number of taxpayers.

The late return penalties apply to personal, partnership and trust returns for 2010/11 onwards.  If the return is submitted after the filing deadline (31 October 2011 for paper returns and 31 January 2012 for electronic returns) then a £100 penalty will automatically be charged.

If the Return is more than three months late then HMRC may also impose a £10 daily penalty.  If the Return is still outstanding 6 months after the submission deadline then HMRC will charge an additional penalty of £300 or 5% of the tax liability shown on the return, whichever is greater.   To top it all, a further penalty can be imposed if the Return is submitted over 12 months late and this can be up to 100% of the tax shown on the return, so much for those of you that think that there is a cash flow benefit of not submitting your returns and paying your tax bills.

The penalties for failing to submit a tax return on time apply regardless of whether the tax has been paid, so paying first and then not filing the return is not really a sensible option.

For those partners in traditional partnerships or LLPs amongst you, if a partnership return is submitted late then each partner is charged a penalty.  If a partnership of 10 partners files its return two months late then the total penalty will be £1,000.   If I were HMRC, I know where I would be looking to find some money.

The late payment penalties apply to income and capital gains tax liabilities whether included in tax returns for 2010/11 and subsequent years or separately assessed, which includes amendments to returns made in 2010/11 and after.  On top of all that interest is also charged on the late paid tax.

The late payment penalties are:

  • 5% of the tax that is not paid within 30 days of the due date,
  • A further 5% of the tax that remains unpaid 6 months after the payment date, and
  • An additional 5% of the tax that is still unpaid 12 months after the payment was due.

Late payment penalties can be avoided by contacting HMRC before the payment is due to let them know that the taxpayer is experiencing cash flow difficulties and reaching an agreement as a “time to pay agreement”.  These agreements, however, are not as easy to obtain as they once were.  If the revised payment deadlines, however are not met then late payment penalties will be charged.

You can, however, appeal against the amount of any penalty and it is also possible to ask for a penalty to be reduced to nil if you have a “reasonable excuse”, whatever that is.   The legislation, however, states that having insufficient funds cannot be a reasonable excuse unless it is caused by events out of the taxpayer’s control… world recession, the Euro crisis and the continuing credit crunch seem all to be within the taxpayer’s control.

Also the reliance on another person may not be a reasonable excuse and that once the excuse ends then the penalty will be charged unless the failure to pay tax or submit a return is corrected without unreasonable delay.

If a taxpayer submits their Return late and pays their tax after the due date then both late payment and late return penalties will be charged unless they have a reasonable excuse.  Failing to comply with tax obligations will rapidly become expensive…. Resistance is useless!!

It is, however, easier to organise your tax affairs so that you get your information to your tax adviser, and reduces our moaning and badgering, to be in good time to enable your tax return to be submitted before the deadline.

Even if you are preparing it yourself, leaving it to the last minute will mean that things are done in a rush and, even with the best will in the world, mistakes can and will be made which give HMRC even more opportunities to charge tax geared penalties for errors.  You also risk suffering late payment interest and penalties if HMRC do not receive your payment in time, especially as HMRC cannot receive payments via the Faster Payments Service so bank transfers usually take at least three working days to reach them.  The “cheque’s in the post” is also not a get out and will not work.

If you are unable to submit your Return and pay your tax on time, do talk to a tax adviser and we will be happy to help in a relatively painless way and we will not moan at you too much, …… honest.

Steven Mugglestone BA FCA,
Finance Director Services

McGregors Corporate, Entrepreneurial Chartered Accountants and Business Advisers
…….Really good for your business

McGregors Corporate are a Member of Probiz Tax, providing Innovative Tax Solutions to Owner Managed Businesses.

T: 0845 519 5659                T: 0121 236 3317

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Written by Steven Mugglestone

December 9, 2011 at 8:00 am

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