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Answers to key questions about tax penalties and fines

Answers to key questions about tax penalties and fines

November 13, 2013 by Elaine Clark

Answers to key questions about tax penalties and finesWhat fines and penalties exist?

HMRC can impose hefty fines and penalties for a number of things, the main ones relevant to an individual or business are penalties for late submission of a tax return or late payment of tax due, for errors on returns, payments and paperwork and a failure to notify penalty when your circumstances have changed.

What if I am late filing my tax return or making my tax payment?

The penalties accordingly to the particular tax type, for example, if a corporation tax return is filed late, the penalty is £100, while a late self-assessment incurs a penalty of £100 for a day late up to £300 and 100% of the tax due after 12 months in serious cases. If you had problems when filing your tax return, HMRC will consider “reasonable excuses”, for example, a failure in a computer system or serious illness, but reasonable excuses do not include forgetting to do the return or not having time available to do it.

What happens if I make a mistake on my tax return?

If you understate or misrepresent the tax due on your tax returns, you can be fined – even if your excuse is that you were not aware of the tax laws. This is known as an “inaccuracy penalty. HMRC expects every individual or business to keep records to allow them to provide an accurate return. Where an individual or business is uncertain over tax affairs, HMRC expects them to check with their accountant to confirm the correct position.

HMRC will charge a penalty where there has been a lack of “reasonable care” in the preparation of the return, incorrect information has been intentionally submitted or the return was deliberately wrong and information has been concealed.

The penalties due are based on the reason for the error and the amount of tax lost. The following are the guidelines for the level of penalties:

  • Between 0% and 30% of the extra tax due to lack of reasonable care.
  • Between 20% and 70%of the extra tax due for a deliberate error.
  • Between 30% and 70% of the extra tax due for a deliberate and concealed error.

The penalties could be reduced if you tell HMRC about the errors, give them access to the figures and help them to work out the extra tax due. 

What if I forget to tell HMRC about a change in my circumstances?

You may be liable for a failure to notify penalty. For example, if you or your partner earn more than £50,000 and are receiving child benefit, you may need to have registered for self-assessment. Registering late for self-assessment (ie after 5 October) could result in a failure to notify penalty.

There are many things you must tell HMRC about, including:

  • Starting a new business.
  • If your business turnover has exceeded the VAT registration threshold (currently £79,000).
  • Selling an asset at a profit level where capital gain tax would be due.
  • A change in circumstances where a self-assessment tax return would need to be completed (eg child befit tax charge, rental income, untaxed income, etc).

The penalty due for failing to notify HMRC is a percentage of the tax (known as the “potential lost revenue” or PLR) that is unpaid on a specified date or the amount that the person is liable for the relevant period.

So, for example, if you failed to tell HMRC by 5 October 2013 about child benefit you received when you were earning more than £50,000, as long as you complete the 2012/13 self-assessment and pay any tax due by 31 January 2014, the failure to pay penalty will be nil (there is no tax lost and so any percentage penalty applied to a zero tax loss is nil) – which makes this a slightly barmy penalty in some cases.

What happens if you are using an accountant?

Even if you have appointed an accountant, you are still responsible for all tax returns, calculations and payments, although clearly any reputable accountant should be guiding you through the tax minefield and making sure you avoid any unnecessary fines and penalties.

Try to find an accountant who is a member of a professional body, such as the Institute of Chartered Accountants in England & Wales (ACA or FCA), Association of Chartered Certified Accountants (ACCA or FCCA), Institute of Chartered Accountants of Scotland (CA), Institute of Chartered Accountants in Ireland (ICAI), Chartered Institute of Management Accountants (ACMA or FCMA) or Association of Accounting Technicians (MAAT).

Where can I find more information about fines and penalties?

The best place is find all of the information on fines and penalties in one place is in the agents or accountants section of the HMRC website.

Using 20 years’ experience spent working at some of the UK’s leading businesses, award-winning chartered accountant Elaine Clark is the founder and managing director of www.cheapaccounting.co.uk, an online accounting service aimed at small businesses with big ambitions. Follow Elaine on Twitter at @cheapaccounting.

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