March 1st. The phone at Mad Hatters Accountancy rings. As is so common at this time of year, it’s a nagging, urgent kind of ring – almost panicky. We just know what’s going to happen next –
“Mad Hatters Accountancy – how can I help?”
“You’ll never believe what’s happening! Surely they can’t do this to me!”
“It’s OK – take your time and tell me what’s wrong. You’re not, by chance, calling about HMRC, are you?”
“Goodness! How did you know? Yes, I am, as it happens. The blighters keep fining me for late self-assessment filing and late payment of tax! I’m in a right old pickle!”
“Oh … really? (note the thinly-veiled sarcasm) I think we need to sit down and have a chat. When would you like to pop round?”
It’s the same old sob story. We hear it year after year, and it’s such a shame – especially as it’s so avoidable. (Interestingly, those who suffer the anxiety and indignity of HMRC penalties are rarely Mad Hatters clients – although soon after, they often become one!). All it takes to avoid the penalty pain is a little forethought and planning.
So let’s put the cards on the table. Let’s look more closely at what you will have to fork out to HMRC if you’re late filing your annual self-assessment return and paying the tax you owe.
There’s the rub (and do forgive this digression) – we’re talking about money that ‘you owe’. Money that, from the moment it hit your bank account was never really yours – but the government’s. Money that the law demands you pay in order to keep the country ticking over. So – speak to your accountant now about how much you should set aside monthly in a separate account so that your tax liability doesn’t come as a nasty shock.
Back to those cards on the table – what penalties are due for outstanding tax returns? What penalties are due for late payment – and even for errors in your return?
By the way – just because you pay your tax on time doesn’t mean your late filing penalty isn’t reduced. You’ll be hammered for both. What’s more, you’ll pay interest on both unpaid tax and unpaid penalties.
Take a look –
|Late filing||Late tax payment||Penalty|
|You miss the filing deadline||£100|
|30 days late||5% of tax due|
|You’re 3 months late||Daily penalty £10 per day for up to 90 days (max £900)|
|6 months late||5% of tax due or £300, if greater*|
|6 months late||5% of tax outstanding|
|12 months late||5% or £300 if greater*|
|12 months late||5% of tax outstanding|
|12 months late and HMRC reckon you’re deliberately holding back information||Based on your behaviour
* There can be exceptions – talk to us about these.
Here’s an example
Let’s say you’re spending this month in South Africa. Lucky you – but you’ve earned it and you’ve been so looking forward to following the England cricket team. You accidentally forgot to file your 2018/19 self-assessment tax return, which shows you having a tax liability of £1,000. You come home and file your return on 1 February. HMRC will – and yes, they will – they’re an unforgiving lot – send you notification of the following penalties. First, the penalties for late filing –
|Missed filing deadline: 31 January||£100|
|Unfiled after 3 months: deadline 30 April 2020||£10 per day for 90 days|
|Unfiled after 6 months: deadline 31 July 2020||£300 reduced to £100|
|Unfiled after 12 months: deadline 31 Jan 2021||£300 reduced to £nil|
Now, the penalties for late payment of that £1,000 income tax –
|Unpaid by midnight 2 March 2020||£50 (5%)|
|Unpaid by midnight 1 August 2019||An extra £50 (5%)|
|Unpaid by midnight 1 February 2020||Another extra £50 (5%)|
OK – I know – it all looks a bit grim. But the news isn’t all bad.
- All this out-of-pocket pain is avoidable if you plan – and we’ll help you with this.
- If the worst happens and you find yourself jumped on by HMRC for missing your deadlines, there’s an appeals process. These can be successful – but only if you have a good case in your favour. We’ll help with this as well.
- If cash flow is tight and you really can’t pay what you owe all in one go, you can negotiate a ‘time to pay’ agreement. Guess what? We’ll help with that too!
Look out for our next blog where we’ll cover both the appeals process and ‘time to pay’ agreements.
We’re self-assessment specialists
This difficult and potentially stressful field is an area where we have enormous expertise. We’re perfectly placed to guide you through the maze of self-assessment and income. All it takes to give you peace of mind is to pick up the phone. We’ll be delighted to hold a no-obligation conversation and talk you through the process.
Remember – we’re here to help