Sadly not paying your taxes on time here in the UK incurs penalties from HMRC, and knowing how to avoid them is key to keeping more of your hard-earned cash! We have created this blog post to give you all the information you need on HMRC penalties and how to avoid them so you can keep more of your hard-earned cash in the bank and out of HMRC’s!

HMRC TAX PENALTIES

The core reasons you may receive an HMRC penalty are situations such as where you are:

  • Late filing your return
  • Filling an incorrect return
  • Underpayment of your tax
  • Late making payment

We have outlined below the most common tax penalties businesses face here in the UK and how to avoid finding yourself on the wrong end of one.

CORPORATION TAX RETURN

The most common reason for being fined by HMRC for corporation tax is filling your return late. Unlike with other tax returns, there is no fixed date in the tax year that corporation tax must be filled. Instead, it must be filed 12 months after the end of its accounting period.

The penalty is a flat £100 fee for not filing on time and an additional £100 if you still have not filed it after three months. If you are more than six months late filing it, you’re charged 10% of your unpaid tax amount as estimated by HMRC, and a further 10% is charged after one year.

The best way to avoid this is to have your accounts prepared in time and submitted to HMRC. If you are struggling to do this yourself or even with the help of accounting software, it could be time to call an accountant to assist.

VAT RETURN

VAT returns are due at the end of each accounting period, usually every three months. The deadline to do this is one calendar month and seven days after the end of each accounting period. You are also required to make the payment for the VAT at the same time as filing your return.

Failing to do so will mean HMRC puts you into a surcharge period for 12 months, in which you’re charged a percentage of the unpaid VAT. The surcharges’ details depend on the income level and other factors, but they are laid out in full on the HMRC website.

SELF ASSESSMENT TAX RETURN

If you do not file your SATR by the 31st of January or inform HMRC that you are no longer self-employed, you will automatically get a £100 fine. This can then increase every quarter until such time that a daily interest charge can also be applied.

If you are late filing your tax return, a penalty calculator can help you determine how much you will need to pay on top of your tax return. In certain circumstances, you can appeal the fines directly with HMRC, but there must be a compelling reason for the tax return not being filled on time for this to be accepted.

PAYE & NI

PAYE and NI returns must be completed monthly for any payments within the tax month (6th of the month to the 5th of the following month).

On or before your employee’s payday, you must:

  • record their salary payment
  • calculate deductions, including tax and National Insurance
  • calculate the employer’s National Insurance contribution
  • produce payslips for each employee
  • report pay and deductions to HMRC in a Full Payment Submission

Then the following tax month, you are required to:

  • Claim any reductions on what you owe by the 19th. Submit the Employer Payment Submission (EPS) to reclaim statutory payments made to employees, Employment Allowance etc.
  • Pay HMRC by the 22nd (if you pay by cheque the deadline is the 19th)

If you do not do all that is required, you could face fines of up to £400, more if HMRC chooses to do so.

ERRORS IN YOUR TAX RETURN

You can also be subject to a fine if you have errors in your tax returns. Any mistakes that HMRC deem to be:

  • Due to a lack of ‘reasonable care.’
  • Deliberate
  • Concealed

Can lead to fines of up to:

  • Due to a lack of ‘reasonable care.’ – between 0% and 30% of the extra tax due
  • Deliberate – 20% and 70% of the additional tax due
  • Concealed – between 30% and 100% of the additional tax due

So keeping strict tax records and accounts is in your best interests to avoid these penalties.

PREVENTION IS BETTER THAN THE CURE

The best way to avoid HMRC tax penalties is to be prepared in advance through strict bookkeeping and accountancy practices. It is also why a good accountant can end up paying for themselves, as they can keep you on track and avoid any HMRC penalties and interest payments!

If you need help getting your business accounts to avoid penalties, call us at RJF Accounting; we handle all shapes and sizes of business accountants and tax returns, helping you stay ahead of the late fees and fines!