HMRC Penalties (Ouch!) - A Quick Guide!

HMRC can issue penalties for many reasons, however, the most common is for the late filing of tax returns.

The online tax return deadline is at midnight on 31st January and a filing, even one minute after this, will normally incur an instant £100 penalty. This stays in place for 3 months until April 30th... and then things start getting serious, with a £10 per day increment accruing until 31st July. At this point, a further *£300 'fixed' penalty is applied and, thereafter, the accrued penalty remains static until the following 31st January, when another *£300 is applied. Accordingly, the potential penalty at midnight on 31st July is £1,300 and is £1,600 for a full year of 'lateness'.

This is not where it ends and if there is a tax liability subsequently recorded, of which 5% exceeds £300, this amount is used rather than the two *£300 fixed elements accruing per year.  Ongoing, beyond the first year, the penalties are applied in the same way and accrue indefinitely until the tax return is filed.  The filing of the tax return 'crystallises' the late filing penalty, whereby any ongoing penalties will be directly related to the tax amount as finalised on the return and any unpaid element thereof.

The 31st January online tax return deadline with associated penalties normally only applies if a 'notice to file' has been issued by HMRC in advance of 31st July following the end of the tax year. If a notice is issued after this date, then the deadline rule applied is 3 months following the date of the notice, or 31st January, whichever is the later.

It is important to note that individuals applicable to the upcoming making tax digital MTD (ITSA) may be subject to a different filing penalty system.

The other potential penalties issued by HMRC include:

• Late payment of tax (regardless of whether the tax return was filed on time).
• Late notification of income (i.e. self- employed trading, property letting, capital gains, foreign income, etc.).
• Reporting errors that are deliberate, or careless.

The potential penalties, as listed above, together with any other penalties that are 'uncommon' are complex and generally require the provision of specialist advice.

Using the Taxeezy service will minimise the chances of a penalty due to the ease of input and speed of filing (normally within 3 working days from receipt of information), coupled with the ability to seek unlimited advice in the course of tax return preparation and then annual support ongoing... all for a very reasonable fee!