Missed The Tax Return Deadline. What next?

If you are self-employed, a company director or in receipt of certain benefits together with meeting other qualifying criteria, you are required to complete a Self-Assessment Tax Returns every year. Just because you missed the filing deadline does not mean you can give up and take what’s coming lying down.  The HMRC have become well known for heavy penalties, but there is still a way out without incurring these. Take action now and stop postponing submitting your taxes. This article details the penalties of missed filing deadlines and failure to comply with tax legislation.

What Are The Deadlines?

You can submit your Self-Assessment Tax Returns in two ways:

  1. Fill in and submit paper tax returns by 31 October of the tax year
  2. Online filing should be submitted by 31 January following the tax year end

Failure to meet these deadlines will result in an automatic late filing penalty of £100. The tax department collects nearly £10-million pounds every year just from late filing penalties alone. The total penalty earnings just shows the number of people who do not file their taxes on time; you are not alone, but this is not a great company to be in. Penalties will escalate the longer your taxes remain unfiled so it is in your best interests to get your head out of the sand and get some help if you can’t do it on your own.

What is The Late Penalty Regime?

In 2011 the government via the tax office (HMRC) introduced a raft of measures to tackle late tax filing and late tax payments. The penalty regime outlines the amount of money you can expect to pay for each of the following:

The rest of this article will discuss the above components of the penalty regime and outlines how you can mitigate the costs if you have missed the filing deadlines.

Late Filing & Related Penalties

Most people file their taxes late because they feel their taxes are very complicated, and they end up just not doing anything about it. Since the new penalty structure came into force nearly four years ago, there has been a dramatic rise of money you can become liable to the tax man out of penalties alone. Ignoring your tax affairs and letting the cumulative penalties mount up is just a waste of your hard earned currency. We are sure you can find something to do with £1,600 (average penalty for a tax return overdue by 12 months). This figure is up from a maximum of £200 in 2011.

Below are a list of the penalties you can expect to pay if you miss filing by one day, three months, six months and one year.

Missed Filing Deadline – You will be automatically fined a £100 fee if the deadline passes and your tax return has not been received. Whether you have any tax due or not, you will still be charged the fixed penalty for failing to file on time.

Three Months Late – Also to the fixed penalty for missing the deadline, you will be charged £10 for each day past the deadline, up to a maximum of £900.

Six Months Late – The penalties will continue to mount if you do not take action. A fixed penalty of £300 becomes payable on the six-month anniversary of your missed filing date; this is one anniversary not worth celebrating. If 5% of the tax you owe is more than £300, then that is the penalty you will be charged. This is added to your already existing penalties!

Twelve Months – if you do not submit your returns for an entire year another £300 or 5% of tax due is added to your penalty bill. The HMRC may make a demand for the penalty payment and 100% of the tax due in full.

Late Tax Payments

Paying your taxes late after you have received your bill will incur you more penalty. Also to the late payment penalties, you will also be charged some interest. You may be thinking hold on a minute, where is the interest coming from, however, the truth is you “owe” tax throughout the year as interest-free credit. Below is the late tax payment penalty regime:

30 Days Late: You will be charged an additional 5% of the total tax amount you owe.

6 Months Late: You will be charged an additional 5% of the tax you currently owe.

12 Months Late: An additional 5% is charged to the tax you currently owe

It is within your power to stop the late tax payment penalties mounting, and the sooner you acknowledge you are having trouble paying your taxes, the better. Getting your accountant involved at an earlier stage is advisable as they can provide advice on how to minimise penalties.

Interest on Tax Owed

Failure to settle your tax liabilities in total on the due date will result in the HMRC charging you interest on any unpaid interest. The interest remains in place until you have settled your dues. You will also be paid interest if you pay too much tax for some reason. The current tax rates are 3.0% on the tax owed and 0.5% of any overpaid taxes.

If you have been charged late payment penalties, you will still be liable for any interest applied to your account, even if you managed to appeal some of the penalties.

What You Can Do to Prevent Tax Penalties

Running a business is not without risk and taxation is one of those risks. Completing and filing your Tax Returns on time is one guaranteed way of avoiding paying tax penalties. Keeping records of all transactions from the start increases your chances of everything on hand to complete your Tax Returns when the time comes. Most self-employed people struggle with this record keeping aspect, bookkeeping and attempting to perform their accounting.

Engaging a professional accountant to help with business structure and advising on tax efficiencies is highly recommended, especially when setting up a new business.

So you have missed filing deadlines and have been charged some penalties, is it too late to do something about it? The simple answer is NO; it’s never too late to take control of your tax affairs and to get in contact with the HMRC. Explain your situation and you can reach an agreement to move forward.

In special circumstances, penalties may be reversed or reduced under the Reasonable Excuses rules. If you have a convincing reason for missing your filing deadlines then citing reasonable excuses could well see a reduction in penalties levied against you. The HMRC use discretion in very special circumstances that may include bereavement or serious illness.

If you have missed the filing deadline because your paper Tax Returns are lost in the post, and you have proof of posting then you can contest the automatic penalty. Always make sure you keep a record of any communication you have with the HMRC, including sending mail by registered post.

Time to Pay Agreement

Entering into a Time to Pay Agreement with the HMRC is also another way you can minimise the penalties charged on late payments. If you are struggling to settle your tax bill contacting the HMRC and agreeing on a payment schedule before you have been penalised, then you will potentially prevent further penalties.

This article has covered a lot of ground, such as outlining the automatic penalties for missing filing deadlines, the staged penalty system for late tax bill payments as well as interest charges. We have also discussed how you can protect yourself from penalties and potential methods of reducing penalties, including Time to Pay agreements. The only guaranteed way to prevent automatic penalties is to file on time. Deborah O’Donnell Chartered Accountants can provide the support you require to ensure your tax affairs in order. Give us a call to arrange a meeting to discuss your tax and accounting situation today.

Posted on August 20, 2015