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Main Tax Late Filing and Payment Penalties

This article summarises the main tax late filing and payment penalties. In addition, you should be aware there are penalties for providing incorrect information.

As a small business owner you will have to deal with a number of different departments within HMRC. Each department has different forms to complete with different deadlines and different penalties should either your submission or payment be late. The following is a quick guide as to what you need to be aware of when dealing with HMRC and which deadlines you should put in your diary.

PAYE

Late Filing

Under HMRC's Real Time Information (RTI) system, late filing penalties apply on a monthly basis. However, no penalty will apply for the first month in each tax year that a return is filled late.

New employers will not be penalised if their first Full Payment Submission (FPS) is received within 30 days of making their first payment to an employee.

Filing penalty notices are issued quarterly in July, October, January and April, showing the amount of the filing penalty for each tax month identified in that quarter.

Penalties for late filing may be imposed as follows:

Number of employees

Monthly penalty (£)

1 to 9

100

10 to 49

200

50 to 249

300

250 or more

400

If you feel that a penalty has been issued in error, make sure to appeal against the penalty in writing to HMRC. Details of how to appeal can be found on HMRC's website.

Late Payment

Interest is payable on every late payment throughout the year. For PAYE purposes periods run from the 6th of the month to the 5th of the following month. If paying by cheque, payment should be made by the 19th whereas if paying electronically the payment has until the 22nd to clear in HMRC's bank account. HMRC do not accept Faster Payments so make sure to allow for at least 3 working days for the funds to clear.

HMRC charge daily interest on late payments of PAYE using HMRC late payment interest rates which can be found on the Gov.uk website at https://www.gov.uk/government/publications/rates-and-allowances-hmrc-interest-rates-for-late-and-early-payments/rates-and-allowances-hmrc-interest-rates. Interest will be backdated at the end of the tax year once you have filed your Employer Annual Return.

Penalty charges may be issued for missed payments of PAYE...

No. defaults in a tax year

Penalty percentage

Amount to which penalty percentages apply

1-3(1)

1%

4-6

2%

The total amount that is late in the relevant tax month (ignoring the first late payment in the tax year)

7-9

3%

10 or more

4%

Notes

(1)The first failure to pay on time does not count as a default.

Additional penalties

Amount

6 months late

5 %

12 months late

Further 5%

CIS

Late Filing

If you operate in the construction industry you must file a return to report the deductions you have made from your subcontractors on a monthly basis. The period runs from the 6th of the month to the 5th of the following month and you have 14 days to make the return. For example, for the period from the 6th of May to the 5th of June you must file the return by the 19th of June.

The payment of the CIS deductions are made at the same time as your PAYE payments and have the same deadlines as described above.

You must make a return every month even when no deduction has been made: if no deductions have been made then you must file a nil return. The penalties for failing to file the monthly return are the same as the PAYE penalties described above.

Late Payment

CIS is paid at the same time as PAYE and follows the same payment pattern. The same penalty and interest regime applies as outlined above.

P11D

P11D forms are required if you provide benefits to employees. Some examples include a company car, fuel, private medical insurance, beneficial loans and accommodation. The P11D also give a breakdown of the expenses provided to each employee. The P11D(b) declares the Class 1A National Insurance payable by the employer.

Late Filing

Forms P11D should be filed by the 6th of July following the tax year. An initial penalty of up to £300 per return may be charged for late filing, with a maximum penalty of £60 per return per day being charged where the failure continues.

For the P11D(b) summary form, where the return is up to 12 months late, HMRC may charge a penalty of up to £100 per month (or part month) for each batch (or part batch) of 50 earners for whom Class 1A is payable. Returns over 12 months late may be subject to a penalty of an amount not exceeding the amount of unpaid Class 1A NICs outstanding at 19 July.

Late Payment

Class 1A NICs need to be paid to HMRC by the 22nd of July if paying electronically, or by the 19th of July if paying by cheque.

The same penalties and interest rates apply to Class 1A National Insurance as to that under PAYE.

VAT

Late Filing and Late Payment

VAT returns are made quarterly in the majority of cases, but there are monthly and annual schemes.

You must file your VAT return online by the end of the month plus 7 calendar days of the period end. For example for a quarter ended in May, you must file your VAT return by the 7th of July.

If paying by cheque you must pay by the VAT return due date but if paying electronically you can also pay any VAT due by the 7th. Again, HMRC do not accept Faster Payments so you must ensure funds clear by then. Furthermore, if paying by direct debit HMRC will collect payment a further 3 working days after the 7th.

There are different rules depending on your turnover. The table below summarises the rules for surcharges where deadlines are not met:

Default

Turnover below £150,000

Turnover above £150,000

First

No surcharge

No surcharge

Second

No surcharge

2% of unpaid VAT(unless below £400)

Third

2% of unpaid VAT(unless below £400)

5% of unpaid VAT (unless below £400)

Fourth

5% of unpaid VAT (unless below £400)

10% of unpaid VAT

Fifth

10% of unpaid VAT

15% of unpaid VAT

Sixth and subsequent

15% of unpaid VAT

15% of unpaid VAT

If you are late with a payment or filing a return, HMRC will initiate a 12 month probation period known as a 'Surcharge Period' during which any successive failures will incur the next level of fine as well as resetting the Surcharge Period for another 12 months. The Surcharge Period will come to an end when 12 months of consecutive returns are filed and paid on time.

Surcharges apply if you miss a return or a payment, so even if you pay on time but don't file the return the surcharges still apply in the same way and vice versa.

Corporation Tax

Late Filing

Your Company Tax Return must be filed within 12 months of the end of your accounting period.

Penalties for late filing are as follows...

  • £100 for up to three months late.
  • A further £200 penalty if you file your return more than three months late.
  • If your Company Tax Return is late for three or more accounting periods in a row, the fixed penalty increases to £500 for both violations.
  • There are additional tax-related penalties of 10% of the unpaid corporation tax where a return is filed between 18 and 24 months after the end of your accounting period and a further 10% where a return is still not filed after 24 months.

Late Payment

Payment of Corporation Tax is due 9 months and a day after the period end, this means that you may end up paying the Corporation Tax before you file your Company Tax Return. Interest is payable on any tax paid late as per the interest rates shown at https://www.gov.uk/government/publications/rates-and-allowances-hmrc-interest-rates-for-late-and-early-payments/rates-and-allowances-hmrc-interest-rates.

Personal Tax - Self Assessment

Late Filing

The penalties for late Self Assessment returns are as follows:

  • Initial £100 penalty for late filing of the tax return, irrespective of the tax due or if you have paid tax on time.
  • If you haven't filed your return after 3 months daily penalties of £10 per day apply, capped to £900.
  • If you haven't filed your return after 6 months a further penalty of 5% of the tax due or £300: whichever is greater.
  • After one year, another 5% or £300 charge, whichever is greater. In serious cases the penalty after 12 months can be up to 100% of the tax due.

The penalties are applicable even if no tax is due.

Late Payment

Interest is applied to any late payment of tax at the rates shown at https://www.gov.uk/government/publications/rates-and-allowances-hmrc-interest-rates-for-late-and-early-payments/rates-and-allowances-hmrc-interest-rates. If you don't pay the tax you owe for the previous tax year on time by 31st January the following penalties apply...

  • If not paid within 30 daysa 5% surcharge of the tax due applies.
  • If the payment is six months latea further 5% penalty is payable.
  • If the tax goes unpaid for 12 months a further 5% surcharge is payable.

Penalties do not apply to payments on account that are late but interest does.

In conclusion, operating a small business means that you have a number of deadlines to adhere to. You must ensure that you file all your HMRC forms on time to avoid penalties and make payments on time to avoid interest and surcharges.

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