Late tax return penalties loophole closes in UK

Tuesday, January 24, 2012 | Posted by: Naomi Smith
Categories: Personal, Protecting your wealth | Tags: tax, HMRC, penalties, liability, Naomi Smith, deadline, fines, penalty, unpaid tax, charges, January 31, late filing, tax return, reasonable excuse, loophole

The 31 January tax return filing deadline is fast approaching but many taxpayers are blissfully unaware of HMRC’s new penalties for late filing and could be in for a nasty surprise.

I’m OK – I’ve paid my tax just not filed my return
Are you used to filing your tax return late? The initial penalty for late filing is £100, but in the past lots of people who filed their tax returns late have dealt with the problem by paying any tax due by 31 January and then successfully appealing the late filing penalty on the grounds that there was no tax outstanding at 31 January. HMRC has now closed this loophole. This year, if you file late, the £100 penalty will be due, even if you have paid all your tax.

I have a reasonable excuse
Many people might consider that they have a ‘reasonable excuse’ for filing their tax return late. But HMRC expects there to be a pretty serious reason before a reasonable excuse claim will be accepted. For example, general illness, being too busy, or simply getting lost in the complexities of the system just won’t cut it. Even being let down by your tax agent is not considered to be reasonable excuse!

If it’s already late I don’t have to worry, right?
Wrong. Now you should get really worried. Here’s a list of the charges that HMRC could be sending your way:

• If your return is more than three months late, a penalty of £10 per day can be applied up to a maximum of £900.
• If your return is more than six months late, expect a penalty of the greater of £300 or five per cent of the tax due in addition to the above penalty.
• If your return is more than 12 months late, a penalty of the greater of £300 or five per cent of the tax due in addition to the above penalties.

Penalties of up to 100% of the tax can also be charged if HMRC decides that you are deliberately withholding information to stop its agents from assessing tax.

I haven’t paid the tax yet either
Late payment penalties will be charged if you pay your tax late. These are five per cent of your 2010/11 unpaid tax liability at the following dates:

• 28 February 2012
• 31 July 2012
• 31 January 2013

So if you file your tax return seven months late and have a £10,000 tax bill, which remains unpaid until you file your return, that could cost you £2,500 in penalties. Ouch! And that doesn’t include late payment interest, which will also be charged at three per cent.

What do I do if I want to file my tax return by 31 January?
As the paper tax return filing deadline was 31 October 2011, you will now need to file your tax return online.

If you already have an accountant or tax adviser, you need to provide them with the details to complete your tax return as soon as possible.

If you are filing your own tax return, hopefully you already have online filing passwords and login details from HMRC. If not, chances are that you are probably out of time to get these issued before 31 January. In these circumstances, your best option is to appoint a tax agent to prepare your tax return for you.

As tax agents are busy at this time of year you will need to choose an agent quickly and provide them with details of all your income, capital transactions, and anything that you wish to claim for, such as gift aid and pension contributions. They will also need your UTR (unique taxpayer reference) and National Insurance number.

Please contact us as soon as possible if you would like us to prepare your tax return. Email Joe Wake, Tax Manager, at .(JavaScript must be enabled to view this email address) or call +44 (0)1536 315466.

The new penalty regime is here to stay. To avoid penalties, file on time. And don’t delay filing just because the deadline has passed. That could be very expensive indeed.

Image: (CC) Images_Of_Money / Taxbrackets.org

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