If your tax return is not accurate and submitted before the deadline, the penalties for late filing, late payment of tax, and any errors made, can quickly add up. Additionally, deliberate tax evasion and fraud are viewed very seriously by HMRC.
The onus is on you to comply with tax rules and regulations. Even if your accountant deals with tax issues on your behalf, you are responsible for any penalties or problems that ensue.
So what could you be penalised for?
- Late filing of your tax return
- Late payment of tax due
- Not notifying HMRC of your self-employed status, or of a new company formation
- Failure to register for VAT when the threshold is reached
- Tax evasion and fraud
- Inadequate record keeping
It is important to be proactive in your dealings with HMRC. Even if they have not sent you a tax return notification or payment reminder, the responsibility is yours to find out whether one is needed.
So, let us take a closer look at some of these penalties.
Late filing and late payment
- £100 for a missed filing deadline
- Late payment of 30 days or more incurs a penalty of 5% of the tax due
- Interest is also charged on unpaid tax and penalties
- £100 initial penalty, with additional charges after 90 days
- Potential late payment penalties charged to companies with profits exceeding £1.5 million
- Late filing and late payment surcharges based on a percentage of the outstanding amount. This percentage increases each time there is a default over a period of 12 months.
- Similar to VAT, penalties increase with the number of late payments made
It is possible to negotiate with HMRC for more time if you know that you will not be able to pay before the deadline. Interest on the overdue amount will still be charged, however.
What other tax penalties could you face?
Failing to register for tax and making errors in your tax return both incur potential penalties. Issues with VAT invoices and excise goods may attract penalties, with calculations for these based on the potential amount of tax lost.
If you realise a mistake has been made, you should inform HMRC straight away. It might mitigate the penalty a little if they know you have taken ‘reasonable care’ with your submissions.
Being transparent with HMRC and allowing them to see your records may result in a suspended penalty rather than having to make an immediate payment. They may also provide guidance on how to keep better records. This suspension can last for up to two years, giving you the chance to improve your administrative systems.
Tax evasion and fraud is a very serious matter and can result in criminal prosecution.
Appealing against tax penalties
If you think you have been wrongly penalised, you or your accountant should write to HMRC within 30 days. You may request an independent review of your case, or appeal to the tax tribunal.
Whilst a review or tribunal is underway, part or full payment of the disputed tax may be put on hold, although once the case is decided, interest becomes due on any outstanding amounts.