TALKING SHOP
Happy Returns or New Penalties? - Jason Piper
sending in a return late gets the same level of penalty whether it’s VAT, Income or Corporation Tax or PAYE.
S Late 1 month
2 months 3 months 4 months 5 months 6 months
The general structure is now that you’ll automatically get fined if a return
is late (whether you owe anything on it or not) but only pay tax geared penalties after several months and an official notice.
The late return regime is broadly: How Late
Income Tax £100 nothing extra
+ daily penalties (£10 per day)
+ tax geared penalties
There can be further penalties if your returns are later than six months or if you have several years of late returns outstanding at once.
At the moment, late VAT returns are treated like late payments and
attract surcharges based on the liabilities they reflect. In the future though, that will move to the same £100 basic fine as all the other taxes, with tax geared penalties after six months. Just like now though, if you fall behind again within 12 months, the second fine is heavier; £200, then £300 for a third default and so on.
Late Payments Penalties for late payment of VAT are a recognised fact of life, but penalties for late payments of PAYE are a newer development, and many businesses still haven’t heard about them. Just like VAT, you effectively get one “warning shot” in the year, but any subsequent infringements incur penalties. The amounts are slightly different to VAT, and are paid on the cumulative total of late PAYE in the year. Penalties based on up to three separate late monthly payments run at 1% of the total. If there are four to six late payments, the penalty is 2% of the total late PAYE, 3% on seven to nine and if you make 10 or more late payments you’ll have to pay 4% penalty on all of them.
Beware though that the penalties are not yet automatic, and rely on
HMRC’s systems which can confuse an early payment for one month with a late payment for the month before unless you get all the references right. So, if you miss the June payment, then pay July, August and September early, finally catching up with 2 payments in the October window, there’s a risk that the computer will actually think there are 4 late returns and charge 2% on the July, August, September and June payments, having allocated them wrongly to June, July, August and September respectively. Of course, if that carries on for a year then you’ll end up with a penalty at 4% of your total PAYE, instead of 1% on one month’s worth.
14 • FOOTWEAR TODAY • APRIL 2012 You can no longer avoid penalties by pointing out that it would have been
a nil (zero) return anyway. However, if you do find yourself on the receiving end of a penalty that you think is unfair, there may be scope to appeal. In order to overturn the penalty, you’ll either need to show that it was incorrectly raised or that you had a “reasonable excuse” for not paying/filing on time.
You generally only have 30 days from when it was raised to appeal
against a penalty. If HMRC don’t accept your appeal, which in itself has to state why you think the penalty isn’t valid or reasonable, then you or your accountant may end up having to put your case to the tax First Tier Tribunal, tax specialists who hear appeals against all of HMRC decisions. There’s no particular need to appoint a lawyer for a simple penalty appeal, and the tribunals are in general aware of, and sympathetic to, the difficulties faced by a small business trying to comply with the myriad tax rules they have to follow. “Tax Chamber Hearings” by Keith Gordon, published by Claritax Books, is an invaluable guide if you want to go it alone.
HMRC have published guidance on what grounds they think is a
“reasonable excuse” (such as fire, flood, bereavement, coma etc) and what isn’t (tax return too difficult or failure by a tax agent). HMRC emphasises that “a reasonable excuse can only exist where an exceptional event beyond the control of the taxpayer prevented completion and return of the tax return by the due date.” However, there have been dozens of recent cases on what constitutes a reasonable excuse, and in a fair number of them the judges have decided that HMRC’s interpretation of the law is flawed. So whilst penalties are a necessity to ensure compliance with the tax system, their effects can be managed both before they’ve been levied and after if HMRC has been unreasonable.
Jason Piper Jason Piper is a Technical Officer at the Association of Chartered Certified Accountants.
ince Inland Revenue merged with HM Customs and Excise there’s been a long process of trying to align their powers and processes to allow them to act as a single organisation. A practical upshot of this is the move to align all the penalty regimes which should mean that
Jason Piper
Corporation Tax £100 nothing extra +£100
PAYE (P35 etc.) per 50 employees
£100
+£100 +£100 +£100 +£100 +£100
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