Even a one-day delay in filing a tax return can result in a fixed penalty. But did you know that HMRC penalties for significant delays in filing your tax return can be as high as the tax you owe?
Restructuring of penalties for late submissions
In 2009, tax penalties were restructured to make them more consistent across all types of tax. A few years earlier, penalty rates had been increased for individuals who were late with their self-assessment returns.
For example, if the delay in filing a return is 6 months, an immediate penalty of £1,300 will be imposed for failure to file. The situation does not look good and it gets much worse if 12 months have passed since the filing deadline.
HMRC penalties for significant delays and the amount of tax owed
This type of penalty is rarely described in HMRC guidance (published on GOV.UK). However, they can be quite severe.
A delay of one year in filing a return may result in a penalty of £300 plus 5% of the tax shown on the return after it is filed. However, this is not the worst case scenario.
HMRC is more persistent and relentless than ever when it comes to collecting tax and penalties. If there is an opportunity to recover a significant amount of money from a taxpayer, it will be seized.
If the tax return is late by more than 12 months, HMRC can send a penalty notice equal to the amount of tax due as shown on the return. Of course, as the return has not yet been filed, the exact amount is not known. Therefore, the amount of the penalty will be estimated.
Example
It is 01/02/2017. Bob has not yet submitted his tax return for the tax year 2014/2015, which was due on 31/01/2016. In this case, HMRC has the right to issue an estimated bill, which is not only legally enforceable but can also increase. In Bob’s case, his average annual tax liability in previous years was around £20,000. However, HMRC issued a bill for £30,000 together with a penalty of the same amount, i.e. 100% of the tax value.
Can you appeal a penalty imposed by HMRC?
Let’s go back to the example above. After receiving the penalty notice, Bob takes action. He submits the 2014/2015 return, which shows a tax liability of £18,000. As a result, HMRC cancels the previous bill and replaces it with a new one that reflects the actual tax due. It will also reduce the penalty to reflect the return submitted. However, Bob may not have to pay it.
Intentional delay in filing may result in the maximum penalty
HMRC penalties for significant delays in filing tax returns can be up to 100% of the tax liability. This level is only reached where the taxpayer has deliberately delayed filing the return and concealed information.
If there was no concealment of information but an intentional delay in submitting the return, HMRC may impose a slightly lower penalty—70% of the tax liability. Proving unintentional delay is not easy, especially as HMRC may be confrontational in such cases.
Tip
Rather than engaging in an unequal battle with HMRC over the intention behind the delay, it is best to submit the overdue return. Even if you don’t have all the information, you can estimate your income and tell HMRC in the additional information section.
