HMRC late filing penalties are a nice little earner for the Treasury. According to the Financial Times, 840,000 UK taxpayers missed the January 31st deadline in 2017.

Paul Aplin, vice-president of ICAEW, the accountancy trade body, said of the fines that they were “unfair, often disproportionate and probably counterproductive … Even with a nil liability — even indeed if HMRC owes you tax — being a year late incurs a penalty of £1,600.”

Last year, HMRC wrote off tens of thousands of self-assessment fines totalling £23m. Accountants and other professional bodies are calling for the scrapping of the system but there’s been no movement so far on the subject.

So, what is the current situation regarding HMRC late filing penalties?

Late filing penalties – paper filing late returns

Late filing penalties – electronic late returns filing

Late filing penalties – going beyond 12 month’s lateness

Once a late filing goes 12 months past the deadline, then HMRC may decide that you’re deliberately withholding information and they may decide to do your tax return themselves to determine the amount you owe them.

If they decide that your delay has been deliberate and that you have gone out of your way to conceal your tax affairs, you will be levied a fine of 100% of the tax due or £300, whichever is the greater.

If they determine that your delay is deliberate but you haven’t tried to conceal your true state of affairs regarding what you owe, you will be fined 70% of the tax due or £300, whichever is the greater.

Additional reductions can be gained for unprompted disclosures and for having a “giving and helpful” attitude towards your dealings with HMRC.

Late filing penalties – interest on late filing penalties

Interest is chargeable on both the unpaid tax and the unpaid penalties you accrue.

Late filing penalties – examples of how HMRC may deal with a late filing and late payment

If a return is severely delayed, the penalties can mount quickly.

If you do not send in your tax return for the 2017/2018 year by 31st January 2019 however instead file it on the 1st February 2020, this is how your fines would accrue before interest was applied if your tax bill was £20,000.

Late filing penalties – Time to pay arrangements

If you think you will struggle to meet your financial obligations to HMRC, you can ask for a “time to pay” arrangement.

If HMRC agrees, you can spread your due payments over up to 12 months from the due date of your tax. Time To Pay is often used not only for personal taxation but corporation tax, VAT, and occasionally PAYE.

If you are considering asking HMRC for time to pay, it is advisable to do so before 31st January (self-assessment day). HMRC switches from consultation mode from the 1st February to investigation mode as their work priority is now focused on pursuing tax payers who have missed their deadline.

When you call, let them know how much of your bill you will have trouble paying. Inform them that you have tried different avenues to secure the money, including approaching family, friends, and financial institutions.

You will be asked about your income, your expenditure, your assets including your savings and investments, and how you’re fixing your circumstances so that you don’t need another Time To Pay arrangement in the future.

When setting up a Time To Pay, HMRC will want to collect instalments by direct debit. If you miss even one direct debit payment, it is highly likely HMRC will consider that you have broken your agreement with them and they will pursue the outstanding amount.

Late filing penalties – Do you need to do a self-assessment?

Ideally, you should tell the taxman as soon as you know that you don’t meet the criteria needed to be required to fill out a Self Assessment form.

If you don’t tell them, miss the deadline, and then you start accruing penalties, you can ask HMRC to “withdraw” your tax return.

Please note that you can only withdraw your tax return is all of your income during that period was taxed through PAYE or through taxed savings income or you had no taxable income for the year.

If you have no tax liability but you’re still self-employed, you will still need to complete a tax return.

To request a withdrawal of your Self Assessment form, call HRMC on 0300 200 3310.

Late filing penalties -how do you appeal against a late penalty?

First of all, you should file your return before you appeal against a late filing penalty.

Make your appeal to HMRC within 30 days of the penalty being issues although late appeals will often be considered.

To make an appeal, you need to do so in writing and with a Form SA370 – click here to download.

The taxman will expect you to file your tax return as soon as you can – within 14 days of whatever it was that caused you to file later than required.

If HMRC rejects your appeal, you can ask them for a review which will be carried out by a different official. Circumstances where this may be suitable are where, in your initial application for appeal, you did not include information the first time around which may have swung the decision in your favour.

If this doesn’t work, you can appeal to the First Tier Tax Tribunal.

HMRC will also consider appeals to reduce your penalty due to any special circumstances you went through.

Late filing penalties – what do HMRC or the First Tier Tax Tribunal consider as reasonable grounds for appeal?

If either HMRC or the First Tier Tax Tribunal accept that your excuse was reasonable, your entire penalty will be waived.

Currently, HMRC considers the following as valid grounds for appeal –

• the death of a partner or close relative shortly before the tax return and payment deadline
• an unexpected stay in hospital
• a serious or life-threatening illness
• your computer or software failed just before you submitted your online return or while you were doing it
• fire, flood, or theft
• postal delays that you could not predict
• disability-related delays
• service issues related to the HMRC Self Assessment website (click here to read planned downtimes and service issues)
• your dog ate your form
• your cat buried your form.

OK, the last two aren’t valid – just making sure you’re still paying attention!

If you take your case to the Tribunal (find out how here), the Tribunal is considered to be more tolerant than HMRC in deciding what is reasonable.

Also, if you’ve registered for online filing before the 31st January deadline but you don’t receive your online access code on time to make your filing, HMRC have been known to accept this as an excuse.

Late filing penalties – the new Simple Assessments

From October 2017, Simple Assessment is replaced Self Assessment for the following groups of tax payers:

• people claiming their state pension for the first time whose income in 2016/2017 is higher than the personal allowance of £11,500 for that year, and
• those contributing at the moment to the system via PAYE who have underpaid their tax but who can’t have the underpaid tax collected by HMRC.

At the time of writing, HMRC have not informed the public about the penalties that will be levied for missing the Simple Assessment deadline. HMRC have stated that if someone should miss the deadline, “they should contact HMRC to discuss their circumstances and financial penalties will be applied in line with current policy”.

If you have cause to complain to HMRC about Simple Assessment, click here to start the process.

Late filing penalties and Burton Beavan

Working with your Burton Beavan team, you’ll never miss a deadline. We’ll make sure that all of your details are submitted correctly and on time. We’ll advise you on what you need to pay well in advance of the deadlines.

Please call us on 01606 333 900 or email us at hello@burtonbeavan.co.uk