It is in everyone's interest to avoid penalties. Understanding how Her Majesty's Revenue and Customs (HMRC) penalties work can help you to help your clients to avoid them.
Each tax or duty has specific rules on penalties for late payment or filing. A penalty may also be due if your client doesn't tell HMRC about a liability to tax at the right time.
We strongly recommend you read HMRC guidance "Penalties: an overview for agents and advisers". Click Here to view.
Below is a summary of the key points of note for each main category.
|Register for self-assessment||05.10.16|
|Paper Tax returns||31.10.16|
|Online Tax returns||31.01.17|
|Pay Tax Due||31.01.17|
|Initial Fixed Penalty - 1 day to 3 months late||£100.00|
|From three months late to six months||£10.00 daily charge added up to £900.00|
|Six months late||Either 5% of the tax due or £300.00, whichever is the greater|
|Twelve months late||Either 5% of the tax due or £300.00, whichever is the greater|
All fines are cumulative.
Even if the actual tax due is less than £100.00 or even if a rebate is due the initial fixed penalty remains.
|30 days late||5% of the tax unpaid at that time|
|6 months late||A further penalty charge of 5% of the tax that is still unpaid|
|12 months late||A further penalty charge of 5% of the tax that is still unpaid|
All penalties are cumulative.
These penalties are in addition to any interest charged on all outstanding amounts, including unpaid penalties, until the payment is received.
Penalties do not apply when an agreed time to pay has been arranged with HMRC.
Click Here to view the HMRC information on self-assessment penalties.
|Late Filings||Penalty Per Partner|
|Initial Fixed Penalty - 1 day to 3 months late||£100.00 each partner|
|From three months late to six months||£10.00 daily charge added up to £900.00 each partner|
|Six months late||A further penalty of £300.00 each partner|
|Twelve months late||A further penalty of £300.00 each partner|
The above fines apply to each partner. Therefore, if a partnership has 3 partners the initial fine is £300.00, the second £30.00 per day up to £2,700.00 and so on.
|Type of failure||Maximum penalty for each type of failure|
|Non-deliberate||30% of the potential lost revenue|
|Deliberate but not concealed||70% of the potential lost revenue|
|Deliberate and concealed||100% of the potential lost revenue|
|Initial Fixed Penalty - 1 day to 3 months late||£100.00|
|From three months late to six months||A further £100.00|
|Six months late||HMRC will estimate your company's tax bill and add a penalty of 10% of the unpaid tax|
|Twelve months late||HMRC will add a further 10% of the unpaid tax|
If your corporation tax return is late 3 times in a row, the £100.00 penalty is increased to £500.00.
The penalty is a percentage of the extra tax due when HMRC corrects your mistake. The amount of penalty you'll face will depend on the type of error and when you told HMRC about it.
The penalty will be less if you tell HMRC about your error before they find out about it - this is known as unprompted disclosure. If you told HMRC after they found out about the error, or if you told them because you thought they were about to find out, this is called prompted disclosure.
|Type of error||Penalty Range|
|Unprompted disclosure||Prompted disclosure|
|Careless||0% - 30%||15% - 30%|
|Deliberate but not concealed||20% - 70%||35% - 70%|
|Deliberate and concealed||30% - 100%||50% - 100%|
If you pay your Corporation Tax late, don't pay enough, or don't pay at all, HMRC will charge your company or organisation interest. This interest is known to HMRC as late payment interest.
Interest is charged from the day after the tax should have been paid (normally 9 months and one day after the end of your accounting period) until the date you pay it. Interest charges are automatic, however, interest is not charged on interest itself.
Any late payment interest you pay to HMRC is tax deductible for Corporation Tax purposes. This means you can include this expense in your company accounts for the accounting period when the interest was incurred.
|Number of Employees||Penalty|
|From 1 - 9||£100.00|
|From 10 - 49||£200.00|
|From 50 - 249||£300.00|
|250 or more||£400.00|
An employer is liable to a penalty if, during a tax month, they fail to file one or more RTI returns by the filing date.
For each tax year an employer will not be charged a penalty for the first tax month during which they fail to file one or more returns on time.
This exemption does not apply to employers who operate an annual PAYE scheme who are only required to file one return per year.
If you pay your PAYE late, don't pay enough, or don't pay at all, HMRC will charge your company or organisation interest. This interest is known to HMRC as late payment interest.
Interest is charged from the day after the PAYE should have been paid until the date you pay it. Interest charges are automatic, however, interest is not charged on interest itself.
If you pay your CIS late, don't pay enough, or don't pay at all, HMRC will charge your company or organisation interest. This interest is known to HMRC as late payment interest.
Interest is charged from the day after the CIS should have been paid until the date you pay it. Interest charges are automatic, however, interest is not charged on interest itself.
|How late the return is||Penalty|
|1 day late||£100.00|
|2 months late||£200.00|
|6 months late||£300.00 or 5% of the CIS deductions on the return, whichever is the greater|
|12 months late||£300.00 or 5% of the CIS deductions on the return, whichever is the greater|
For a return later than this, you may be given an additional penalty of up to £3,000.00 or 100% of the CIS deductions on the return, whichever is higher.
|Number of late filings||Penalty|
|First Late filing||£100.00|
|Second late filing||£200.00|
|Third late filing||£300.00|
|Fourth late filing||£300.00|
|Fifth and all subsequent late filings||£400.00|
The penalty period is 1 year but the 12 month period starts again each time a late filing occurs.
|Number of late payments||% of VAT owed|
|First late payment||No penalty
but 12 month penalty period commences
|Second late payment||2%|
|Third late payment||5%|
|Fourth late payment||10%|
|Fifth and all subsequent late payments||15%|
The penalty period is 1 year but the 12 month period starts again each time a late payment occurs.
The new penalties for inaccuracies in tax returns and documents was introduced on 1st April 2008 but only for Returns where the accounting period commences on or after 1st April 2008.
Information on the new penalties can be found on VAT Notice 700/42.
|Up to 9 months||5%|
|9 - 18 months||10%|
|Over 18 months||15%|
The penalty is calculated as a percentage of the VAT due, from the date when you should have registered to the date when you do register
Subject to a minimum penalty of £50.00
Based on tax evaded, maximum penalty: 100% (plus interest)
|Possible reductions on penalty||Up to|
|a. An early and truthful explanation as to why the arrears arose and the true extent of them||40%|
|b. Co-operation in substantiating the true amount of arrears
Attending interviews and producing records and information as required
The interest rate is set by the Air Passenger Duty and other indirect taxes (interest rate) Regulations 1988. It will be a simple, not compound, rate and will broadly be in line with Commercial Rates of interest.
You cannot deduct this interest from your net profit for the purposes of calculating your direct tax liability - the rate of interest is set to reflect this.
The default interest is calculated at the above rates on the VAT due.
A default occurs when a return is received late or when it is received on time but the tax is not.
|Default||% of VAT owed|
but default period commences
Minimum surcharge £30
At 2% or 5% level, no surcharge assessment will be issued under £400.00
From 1st January 2003, for businesses with turnover up to £150,000.00 p.a., no automatic surcharge until at least 4 separate written communications offering help and support have been made
Between July 2001 and December 2002 for businesses up to £100,000.00 no automatic surcharge until three separate communications received
|Up to 1 month||£150.00|
|Between 1 to 3 months||£375.00|
|Between 3 to 6 months||£750.00|
|More than 6 months||£1,500.00|
The penalty is doubled if your accounts are late 2 years in a row.
Penalties for public limited companies are different.
You can be fined up to £5,000.00 and your company struck off the register if you don't send Companies House your accounts or annual return.
The due date for your annual return is usually a year after either the:
A company has 28 days after the due date to file the annual return.
A company could be fined up to £5,000.00 and the company struck off if you don't send Companies House your annual return.
Click Here to download the abacus Tax Tables pdf booklet
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