If you are yet to file your Self Assessment Tax Return help is still available! But don’t delay as the HM Revenue & Customs (HMRC) penalty regime results in higher penalties the longer you postpone filing your return.
Self Assessment Tax Returns must be filed by the 31 October following the tax year if filing a paper tax return or 31 January if filing online. An estimated 870,000 taxpayers received an automatic late filing penalty last year of £100 so if you have missed the deadline you are unlikely to be alone.
Filing a paper return after 31 October or online submission after 31 January, will lead to a fixed, automatic late filing penalty of £100 and persistent delays in filing returns of over three months can result in escalating penalties courtesy of the penalty regime introduced in 2011.
In this article, we take a look at the consequences of delays in dealing with your self assessment tax affairs and how these can be mitigated, broken down into three sections:
- Late filing penalties
- Late payment penalties
- Interest on late payments
Late filing penalties
The penalty regime changed quite dramatically on 6 April 2011 and, in some cases, the late filing and late payment penalties you are charged may be under the ‘old rules’.
In either case, you should avoid incurring penalties as they are a waste of hard-earned cash and are not tax deductible. The new penalty regime is much more costly than the old system too.
Whereas a tax return that was 12 months overdue may have cost only £200 in penalties; under the new regime penalties could reach £1,600 or more!
Current late filing penalties are as follows:
|Length of delay||Penalty|
|1 day late||Automatic fixed penalty of £100. This applies even if you have no tax to
pay or you have paid the tax you owe on time.
|3 months late||£10 per day up to a 90 maximum of £900. This is in addition to the fixed
|6 months late||£300 or 5% of the tax due, whichever is higher. Again, this is in addition
to the penalties listed above.
|12 months late||£300 or 5% of the tax due, whichever is higher. In serious cases, you may
even be asked to pay up to 100% of the tax due instead. Again, this is in
addition to the penalties listed above.
But there are some instances when you can get a late filing penalty cancelled and there are two main reasons why a penalty could be revoked.
Firstly, if a return has been sent to you late (after 31 July following the tax year end), then the filing deadline for the tax return is either the normal due date or three months from the date of issue of the return, whichever is later.
For example, if a 2013/14 return was issued on 15 November 2014, then the due date would be 15 February 2015; rather than 31 January 2015. This is rare, but it can happen - particularly in the first year of registration.
But the more likely reason is because you have a very good excuse - known as a ‘Reasonable Excuse’. HMRC gives specific examples of a Reasonable Excuse, including: never having received the return from HMRC, loss of your tax records due to fire/ floor/ theft etc, submission problems either with the postal system or HMRC’s online service, serious illness, bereavement etc.
If you think you might have grounds to make a Reasonable Excuse, be aware that there are strict guidelines on what does not qualify and these include work commitments, complexity of your affairs, lack of information, absence of HMRC reminders etc. HMRC even notes that long periods in hospital or convalescing will not necessarily be a Reasonable Excuse. And you will need evidence to support your claim too, such as prints of error messages, proof of postage etc.
Late Payment Penalties
Firstly, it’s worth clarifying the difference between late payment penalties and interest. Late payment penalties or surcharges are imposed to penalise the taxpayer for paying late. Interest is charged to reflect the fact HMRC effectively gave interest-free credit while the tax was outstanding. So they are quite different and not in place of one another.
Current late payment penalties are as follows:
|Length of delay||Rate of penalty|
|30 days||5% of the tax outstanding at that date|
|Six months late||An additional 5% of the tax outstanding at that date|
|12 months late||A further 5% of the tax outstanding at that date|
As with late tax returns, it is possible to ask HMRC to cancel or reduce late payment penalties. The examples of a Reasonable Excuse for late payments are similar to those above for tax returns, such as serious illness and bereavement.
However, you may also have grounds for appeal if the payment was lost in the post or stopped in error by the bank.
But again HMRC has little sympathy for taxpayers and reasons such as cheques being completed incorrectly, failures by agents, work commitments etc will generally not be accepted as a Reasonable Excuse. You stand more of a chance of winning your appeal if you have evidence that you tried to pay on time - and you made attempts to pay again when you realised there was a problem with the first payment.
One thing worth noting is that if you have made a Time to Pay arrangement with HMRC because you cannot pay your tax bill in one go, late payment penalties are unlikely to be imposed - provided that you set up the arrangement before the late payment penalties started.
However, interest is still chargeable. If you set up the arrangement before the subsequent late payment penalties kick-in, you should avoid these later penalties being imposed.
If you fail to pay the full amount outstanding by the due date, HMRC will charge you interest on the amount outstanding until HMRC receive your payment. HMRC also pays you interest if you overpay. The current interest rate for late payment is 3.0% and for repayment is 0.5%.
Even if you successfully appeal against late filing or payment penalties, any interest arising will still be payable. The only way this could possibly be reduced is if you paid promptly, in full or your tax bill is reduced.
If you have been charged penalties and there are exceptional circumstances that lead you to file or pay late, you may have grounds for appeal. If you would like some assistance in handling the appeal, please feel free to get in touch with your local TaxAssist Accountant who would be happy to help.
By Jo Nockels
Last updated February 2015
Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.