For those starting out, it can be difficult to remember all of the important business dates and deadlines. One of the most important deadlines to stay on top of is your tax return.
Hundreds of thousands of tax returns are filed late every year, due to people being unclear on the final deadline, or confusing the paper and online deadlines.
With a minimum fine of £100 for being just one day late, this can work out to be costly for a small business.
What Happens If You File Your Tax Return Late?
HMRC needs to have received your completed tax return by 31 October for paper returns, and 31 January for online submissions. If you miss the deadline, you will automatically be charged £100. If your tax return is not filed within a day of missing the deadline, the potential fines that you can be charged increase substantially.
What Are The Fines?
- One day late: £100
- Up to three months late: £100 initial fine, plus £10 for each additional day that the tax return remains outstanding. This is capped at £1000
- Six months late: Either £300 or 5% of the tax that is due (whichever is higher), plus the penalties listed above.
- One year late: All of the above penalties, as well as an additional £300 fine, or 5% of the tax due. In serious cases, HMRC may charge you 100% of the tax due on top of the actual tax, and all of the penalties listed above.
What Happens If You Pay Your Tax Bill Late?
The deadline for paying your tax bill is 31 January after the end of the tax year (which is the same as the online filing deadline). As well as getting a penalty for the late submission of your tax return, you will also be charged for paying the tax due late. You will be charged interest from the date that the tax was due, which, at the time of writing, was 3.25%.
Penalties For Paying Late
- After 30 days: a charge equal to 5% of the outstanding tax
- After six months: the existing penalty charge, as well as an additional 5%
All of these charges are on top of the charges that you owe as a result of filing your tax return late. As an example:
If your tax bill as of the 31 January 2020 was £3,000, you would be charged interest for every day that it went unpaid, plus the £150 charge after 30 days, again at six months and once again after a year.
By the 31 January 2021, you would owe £450 in surcharges, and £80+ in interest, on top of the £3,000 you already owed.
What If You Don’t Owe Any Tax?
Many business owners make the mistake of thinking that, because they don’t owe any tax, they won’t be charged for filing their tax return late. Even if you are a fairly small operation and haven’t earned enough to owe tax, once you register as self-employed or as a business, you are required to fill out a tax return.
According to HMRC figures, 1,635,000 late tax returns were filed between April 2012 and April 2017 by people who owed “£0 or less” in tax. This means that late filing penalties were applied for people who didn’t owe anything, and for some people that were actually owed money from the taxman.
It is possible to appeal a penalty handed down for filing your tax return late, as long as you have what HMRC considers a ‘reasonable excuse’ for doing so. You should make sure and file your tax return as soon as you can even if you do have a reasonable excuse, and make sure that it has been submitted before you start an appeal against any penalties.
An appeal must be made directly to HMRC, in the first instance, and must be made within 30 days of a penalty notice being issued, using form SA370, which is available on the HMRC website. It is possible to appeal later than this, but again this will only be considered in special circumstances, and you may have to appeal to the Tax Tribunal in order to have your appeal allowed.
What Constitutes A Reasonable Excuse?
Although HMRC is strict on the timely filing of tax returns, the organisation states it will be lenient in special circumstances that are out of your control. A reasonable excuse is anything which is unexpected, out of your control and serious enough that it would have made filing your tax return on time difficult if not impossible.
Examples of a reasonable excuse include:
- Death of a partner or in your immediate family
- Unexpected hospital stays
- A fire, flood or other natural disaster which prevented you from completing your tax return, or caused delays to postal services
- Computer failures
You will have to provide evidence of your excuse, and each case will be considered individually by HMRC.
What Happens If You Make A Mistake On Your Tax Return?
Mistakes happen, and HMRC understand this, however, penalties are charged on mistakes in tax returns as a way to ensure that people take the utmost care in completing their tax return, and to deter fraud.
Penalties charged for mistakes on tax returns include:
- If you have taken reasonable care to complete your tax return correctly, and HMRC believes the mistake to have been genuine, you won’t have to pay a penalty.
- If HMRC believes that you were careless in completing your return, you will be charged between 0% and 30% of the extra tax that is owed.
- If you are considered to have deliberately underestimated your tax, the penalty is between 20% and 70%
- If you have deliberately underestimated your tax and then tried to conceal this, the penalty is between 30% and 100%
Can You Correct Mistakes On Your Tax Return?
If you realise that you have made a mistake on your tax return and want to rectify this, you can correct your tax return for up to one year after the filing deadline on the HMRC online portal.
If you want to fix a mistake after a year, you will have to write to HMRC directly, in order to explain why and how the mistake came about, and request that your return be changed.
Find Out More
Completing and submitting your tax returns on time is something that is certainly within the abilities of most who are required to file one. “Planning” your taxes, so that you declare and structure your finances in such a way to minimise how much tax you pay, is a different matter, and is best left to the tax professionals.
The team at TFMC can take a look at your finances and make suggestions on how to reduce the tax you pay. The cost for doing this is frequently much smaller than the saving gained, especially if you are a higher rate tax payer.
If you want to find out more then call us on 0800 470 4820 or send us an email at firstname.lastname@example.org.