We are sharing this update from ACCA, our professional body, for the interest of clients and contacts. The content is (c) ACCA
A comprehensive look across different types of tax
Penalties for late filing of returns and paperwork or late payment differ according to which tax you are dealing with.
Income tax self-assessment (ITSA) tax return deadlines and penalties
Where an ITSA tax return is filed late a person can be charged:
- an initial penalty of £100 on the day after the return was due
- daily penalties of £10 per day for 90 days where the return is more than three months late
- a further penalty of the greater of £300 and 5% of the tax liability where the return is more than six months late
- a further tax-geared penalty of the greater of £300 and 5% of the tax liability where the return is more than 12 months late (this penalty can be charged at a higher percentage rate if the person withheld information).
In respect of a late partnership return, a late-filing penalty is payable by every partner.
The tax liability used to determine the six month and 12-month penalties is the amount of income tax, capital gains tax and National Insurance contributions which would have been shown in the return. HMRC can determine the amount of any penalty in advance of the submission of the outstanding return by estimating the person’s tax liability to the best of their information and belief. The penalty will then be adjusted when the return is filed.
Where a person is liable to both a six month and a 12-month penalty the total of those penalties cannot exceed 100% of the person’s tax liability. The combined penalties percentage is higher if the person withheld information relating to an offshore matter or an offshore transfer.
Where a person is liable to other tax-related penalties for the same tax liability, the total amount of the tax-related penalties is restricted to the highest single penalty. Penalties for the late payment of tax, the failure to take corrective action after a follower notice and asset-based penalties are excluded.
PAYE and national insurance late payment penalties
HMRC charges late payment penalties on PAYE amounts that are not paid in full and on time. These include:
- monthly, quarterly or annual PAYE
- student loan deductions
- Construction Industry Scheme (CIS) deductions
- Class 1 National Insurance contributions (NICs)
- annual payments of employers’ Class 1A and Class 1B NICs
- determinations made by HMRC where it appears that there may be further tax payable
- decisions, for example about a person’s liability to pay NICs and the amount payable.
Late monthly and quarterly PAYE payments
The first failure to pay on time does not count as a default. The penalty percentage applied is:
|Number of defaults in a tax year||Penalty percentage applied to the amount that is late in the relevant tax month (ignoring the first late payment in the tax year)|
|1 to 3||1%|
|4 to 6||2%|
|7 to 9||3%|
|10 or more||4%|
Daily interest will continue to build up on all unpaid amounts from the due and payable date to the date of payment.
You’ll be charged a late payment penalty if you pay less than is actually due. If you’ve still not paid a monthly or quarterly payment in full after six months, you’ll be charged an additional penalty of 5% of the amounts unpaid.
A further penalty of 5% will be charged if you’ve not paid after 12 months. These additional penalties apply even where only one payment in the tax year is late.
If you pay an adjustment after the end of the year under a special arrangement, you’ll not be charged late payment penalties, as long as you keep to the terms of the arrangement.
Examples of these are the ‘Intermediaries’ rules (often referred to as IR35) or a formal modified PAYE arrangement known as ‘Employment Procedures Appendix 6’.
Amounts due annually or occasionally
You may have to pay a penalty if you have not paid the full amount by the date known as the ‘penalty date’.
For payments such as Class 1A and Class 1B NICs, HMRC determinations and assessments, amendments or corrections to returns, the ‘penalty date’ is 30 days after the due date. For these payments you may have to pay:
- a 5% penalty if you have not paid the full amount within 30 days of the due date
- an additional 5% penalty if you have not paid the full amount within six months of the due date
- a further 5% penalty if you have not paid the full amount within 12 months of the due date.
In most other cases, the penalty date is the day after the due date.
PAYE penalties for late and inaccurate returns
You can get a penalty if:
- your full payment submission (FPS) was late
- you did not send:
- the expected number of FPSs
- an Employer Payment Summary (EPS) when you did not pay any employees in a tax month.
HMRC will not charge a penalty if:
- your FPS is late but all reported payments on the FPS are within three days of your employees’ payday; however, employers who regularly file after the payment date but within three days may be contacted or considered for a penalty
- you’re a new employer and you sent your first FPS within 30 days of paying an employee
- it’s your first failure in the tax year to send a report on time (this does not apply to employers who register with HMRC as an annual scheme).
How much you pay
What you pay depends on how many employees you have:
|Number of employees||Monthly penalty|
|1 to 9||£100|
|10 to 49||£200|
|50 to 249||£300|
|250 or more||£400|
If you run more than one PAYE scheme, you can be charged penalties for each.
Construction Industry Scheme (CIS) monthly returns
Penalties for late returns
You’ll get a penalty if you miss the deadline for filing returns. The penalty will be cancelled if you let HMRC know that you did not pay any subcontractors that month.
|How late the return is||Penalty|
|1 day late||£100|
|2 months late||£200|
|6 months late||£300 or 5% of the CIS deductions on the return, whichever is higher|
|12 months late||£300 or 5% of the CIS deductions on the return, whichever is higher|
For returns later than this, you may be given an additional penalty of up to £3,000 or 100% of the CIS deductions on the return, whichever is higher.
Corporation tax penalties
Where a company has had a ‘notice to deliver a company tax return’ and fails to deliver the return by the filing date, it becomes liable to a penalty.
The penalty or penalties depend on the lateness of the return, and if the return is more than six months late, the amount of unpaid corporation tax.
|Within 3 months after the filing date||£100|
|More than 3 months after the filing date||£200 (charged instead of the £100 above)|
|More than 18 months but not more than 24 months after the end of the return period||10% of unpaid corporation tax 18 months after the end of the accounting period|
|More than two years after the end of the return period||20% of unpaid corporation tax 18 months after the end of the accounting period (charged instead of the 10% penalty above)|
If a company or organisation’s tax return is late three times in a row, the £100 and £200 penalties are increased to £500 and £1,000, respectively.
Flat rate penalties are not charged where a company files its tax return by such extended date as:
- HMRC has allowed for it to deliver the return; or
- the Registrar of Companies has allowed for delivery of related accounts.
when calculating any tax-geared penalties, corporation tax includes:
o tax payable on loans to close company shareholders, ignoring any deferment relief for loans repaid more than nine months after the end of the accounting period; and
o tax in respect of controlled foreign companies.
If HMRC or, on appeal, the tribunal accepts that a company or organisation had a reasonable excuse for a late return no penalty will be charged provided that the return was filed promptly after the reason for not filing ended.
Penalties for inaccuracy and errors
If a taxpayer sends in a document that has mistakes, HMRC will charge a penalty if the error is:
- because of a lack of ‘reasonable care’
- deliberate — such as intentionally sending incorrect information
- deliberate and concealed — for example, intentionally sending incorrect information and taking steps to hide the error.
The level of the penalty is linked to the reason the error occurred. The more serious the reason, the higher the maximum penalty can be. HMRC can reduce the penalty if you or your client help them to put things right.
What ‘reasonable care’ means
Every individual or business is expected to keep records that allow them to give a complete and accurate return. HMRC also expects them to check with their agent, or HMRC, to confirm the correct position if they are not sure.
However, ‘reasonable care’ is different for each client’s circumstances and abilities. For example, a client with relatively straightforward tax affairs may only need a simple system of record keeping that is regularly updated. A large business with complex tax affairs is expected to have a more sophisticated system that is well-managed.
How the inaccuracy penalty is calculated
If a penalty arises because of a lack of reasonable care, the level of the penalty will depend on the reasons for the error and the potential lost revenue. The potential lost revenue is an additional amount of tax which is due or payable as a result of correcting the inaccuracy.
For example, if:
- a penalty arises because of a lack of reasonable care, the penalty will be between 0% and 30% of the extra tax due
- the error is deliberate, the penalty will be between 20% and 70% of the extra tax due
- the error is deliberate and concealed, the penalty will be between 30% and 100% of the extra tax due.
The penalty can be reduced if you or your client tell HMRC about the error. HMRC may make further reductions depending on the quality of the disclosure. Penalties can be reduced by:
- telling HMRC about the errors
- helping HMRC work out what extra tax is due
- giving HMRC access to check the figures.
If a taxpayer does not tell HMRC when changes happen that affect their liability to tax, VAT, or other duties, they may face a penalty. This is known as a ‘failure to notify’ penalty.
A penalty may occur, for example if your client does not tell HMRC, at the right time, that:
- they are liable to tax because their new business has made a profit
- their company is liable for corporation tax
- their business turnover has reached the VAT registration threshold
- they sell an asset and make a capital gain on which tax should be paid
- they start a type of business that must register with HMRC – for example a business that will charge excise duty
- their circumstances change in a way that affects their tax position.
This penalty is calculated on potential lost revenue which is based on the amount of tax or duty that is unpaid as a result of the failure to notify. HMRC can reduce the penalty if your client tells them about the failure. Further reductions may be made depending on the quality of disclosure in a similar way to the inaccuracy penalty.