Penalties for late filing of Income Tax, Capital Gains Tax, and Corporation Tax returns are as follows:
Missed filing deadline – £100;
3 months late – £10 per day for up to 90 days;
6 months late – 5% of tax due, or £300 if greater;
12 months late – 5% of tax due, or £300 if greater.
If the return submitted is not correct, HMRC will seek to apply a penalty where a taxpayer’s actions have caused tax to be underpaid. The penalty is a percentage based on the amount of tax underpaid; whether the mistake was innocent, careless or deliberate; and who spots the problem and how it is disclosed. Fixed penalties can also apply.
No penalty is applied to innocent mistakes. When tax is lost due to an innocent error, the taxpayer needs to show that reasonable care was taken to calculate the tax correctly.
HMRC give the following examples of where a penalty would not be due:
- A genuine but reasonable misinterpretation of the rules.
- An arithmetic error which is not large enough to be picked up by a quality check.
- Following advice from HMRC or a competent adviser which turns out to be wrong.
- Accepting information from another person where it is not possible to check that the information is accurate.
Where there is a failure to take reasonable care, but the taxpayer spots the error and reports it to HMRC, there will be no tax penalty. If HMRC spot the error first, a penalty between 15% and 30% of the amount of tax underreported will be levied. This may be suspended.
When a taxpayer deliberately underreports tax due, a penalty ranging from 20% to 100% of the tax due is levied, depending on how HMRC find out about the error, and whether the taxpayer has tried to conceal it.
If the taxpayer has a reasonable excuse for the failure to file a correct return or pay the correct amount of tax, and took steps to remedy any errors when they were discovered, then penalties can be appealed. Here are some examples of both successful and unsuccessful appeals:
In Tinkler v HMRC it was held that HMRC have a right to assume letters are received by the taxpayer if they are sent to the taxpayer’s usual address. If the taxpayer can show HMRC was informed of a change of address and didn’t use it, this may be a reasonable excuse.
In Bentley v HMRC the elderly taxpayer tried to book an appointment with HMRC at a tax office to file his return on the deadline day for submission. HMRC did not offer a filing service, but also did not say that they did not, and the return was actually submitted a few days late. The taxpayer was held to have a reasonable excuse.
In Maher v HMRC a taxpayer who couldn’t work out how to use online filing may have had a reasonable excuse, but was held not to as he didn’t contact HMRC about it until 6 months after the filing deadline.
In McNamara Joinery Ltd v HMRC problems getting hold of HMRC on the phone were found to be a reasonable excuse for late payment of VAT, as the taxpayer was unable to agree an extension before the filing date.