As I am sure most people are aware, January 31 was the online filing deadline for tax returns for the year ended April 5, 2017, writes Pearson May partner Jacqui Bowden.
If you missed this deadline for whatever reason then you can still file your tax return, but you must act sooner rather than later to remedy the situation, otherwise it can become very expensive indeed.
You may have read reports in the press stating that automatic ‘computer-generated’ penalties issued by HM Revenue & Customs (HMRC) for late filing of tax returns are ‘not legal’. This followed a judge’s comments in a recent first-tier tribunal hearing.
It was reported, somewhat surprisingly, that HMRC is not choosing to appeal this decision – but time will tell whether this means that HMRC will have to review its systems for imposing penalties and whether the current penalty regime will remain in place.
Until then, the status quo prevails. So if HMRC sent you a notice to complete a tax return shortly after April 5, 2017, but you have not yet filed this, then there will be an automatic £100 penalty that you will have to pay – even if there is no tax payable or if you have already paid all of the tax that you think you might owe.
Bear in mind, however, that there are strict timescales within which you are required to notify HMRC of chargeability to tax and the requirement for you to register for self-assessment.
This time limit is six months after the end of the tax year in question i.e. October 5, 2017, for the 2016/17 tax year. If you know you should have registered for self-assessment in respect of 2016/17 but have not yet done so, you should take action sooner rather than later.
Penalties for late registration can be levied and these can be as much as 100% of any tax liability unpaid at January 31 following the end of the tax year.
At present, the maximum penalty for most people who have not yet submitted their 2016/17 tax returns will be the flat rate penalty of £100. There will, however, be interest charged on any tax which has not been paid by January 31, 2018 – including any payment on account toward your 2017/18 tax liability, if that applies to you.
That interest will be charged at 3% per annum and it is worth noting that any tax in respect of 2016/17 which remains unpaid at March 2, 2018 – 30 days after the deadline – will incur a further 5% surcharge.
The above penalties and potential interest may already seem punitive enough, but if your tax return was due to be submitted by January 31, 2018, and is still not submitted by April 30, 2018, then even more significant penalties are levied at the rate of £10 per day – up to a maximum of £900.
There are further penalties levied if the return is more than six months late - £300 or 5% of the tax due, whichever is the higher, in addition to the penalties mentioned above – and if the return is more than 12 months late, an additional £300 or 5% of the tax due, whichever is the higher, and in serious cases can be as much as 100% of the tax due. Additional surcharges also apply. The surcharges and penalties can mount up.
To put it in perspective if you have a tax liability of £1,000 and your tax return/payment of tax is a year late, then the potential interest/penalties and surcharge could amount to £1,780. If the tax liability is £20,000 then the increase to £6,600, on top of the outstanding tax.
As I am sure you will appreciate, because of the potentially significant penalties referred to above, it is much better to try to bring matters up to date as soon as possible, even if you have missed the January 31, 2018, filing deadline. Please contact us if you would like any assistance with bringing your tax affairs up to date or if there is anything else you would like to discuss.
HMRC does have the ability to cancel late-filing penalties if you can demonstrate that you had a ‘reasonable excuse’ for not filing your tax return on time. There is no definition of ‘reasonable excuse’ for these purposes, but if you feel you have genuine grounds for failing to meet the deadline, it may be worth writing to HMRC and attempting to appeal against the fine.
However, you should be aware that generally HMRC will require your tax return to be submitted before they can consider any appeal against late filing penalties.
It is also worth pointing out that late submission of your tax return can have other, perhaps less immediate, financial implications which can include invalidating any insurance policy which you may have in place for professional fees arising on any tax inquiry that HMRC undertake in respect of your tax affairs. You may therefore want to read the small print of any such insurance policies very carefully.
The above is for general guidance only and no action should be taken without obtaining specific advice.
