This article summarises the main tax late filing and payment penalties. In addition, you should be aware there are penalties for providing incorrect information.
As a small business owner, you will have to deal with a number of different departments within HMRC. Each department has different forms to complete with different deadlines and different penalties should either your submission or payment be late. The following is a quick guide as to what you need to be aware of when dealing with HMRC and which deadlines you should put in your diary.
When you have employees, you must operate within the guidelines of PAYE. You must complete an Employer Annual return form (known as a P35) which summarises the deductions you have made throughout the tax year and a P14 form for each employee which summarises the PAYE deductions for each employee. These forms must be submitted by the 19th of May following the end of the tax year. You must file these forms online: penalties are imposed for filing them on paper.
The penalty for the late filing of these forms is £100 for every month or part month that you are late for every 50 employees. For example, if you had 10 employees and filed on the 21st of May then the penalty would be £100, but if you have 60 employees and you filed on the 25th of June you would receive a penalty for £400.
HMRC only issue these penalties periodically every four months in September, January and May the following year, so if you forget to file your return the first penalty notice issued will be for £400.
If you feel that a penalty has been issued in error, make sure to appeal against the penalty in writing to HMRC. Details of how to appeal can be found on HMRC’s website.
Interest is payable on every late payment throughout the year. For PAYE purposes periods run from the 6th of the month to the 5th of the following month. If paying by cheque, payment should be made by the 19th whereas if paying electronically the payment has until the 22nd to clear in HMRC’s bank account. HMRC does not accept Faster Payments so make sure to allow for at least 3 working days for the funds to clear.
HMRC charge daily interest on late payments of PAYE using HMRC late payment interest rates which can be found on HMRC’s website at www.hmrc.gov.uk/rates/interest.htm. Interest will be backdated at the end of the tax year once you have filed your Employer Annual Return.
Penalty charges may be issued for missed payments of PAYE…
- Missing one payment in a tax year there is no penalty, as long as the payment is less than six months late.
- Missing two to four payments, a 1% penalty is issued (of the PAYE due).
- Missing five to seven payments, the penalty is 2%.
- Missing eight to ten payments, the penalty is 3%.
- Missing eleven or more payments, penalties of 4% apply.
If you operate in the construction industry you must file a return to report the deductions you have made from your subcontractors on a monthly basis. The period runs from the 6th of the month to the 5th of the following month and you have 14 days to make the return. For example, for the period from the 6th of May to the 5th of June, you must file the return by the 19th of June. It is still possible to file paper versions of the form, but as with most HMRC forms they can also be filed electronically and it is likely that this will be mandatory in the future.
The payment of the CIS deductions are made at the same time as your PAYE payments and have the same deadlines as described above.
You must make a return every month even when no deduction has been made: if no deductions have been made then you must file a nil return. The penalties for failing to file the monthly return are severe and are as follows:
- 1 day late: Fixed penalty of £100 (even if you are making a nil return)
- 2 months late: Fixed penalty of £200 (again, this also applies to nil returns)
- 6 months late: £500 or 5% of the CIS due, whichever is higher.
- 12 months late: £300 or 5% of the CIS due.
These penalties are cumulative, so if you are 12 months late the penalty is a minimum of £1,100. The maximum penalty is capped at £3,000.
CIS is paid at the same time as PAYE and follows the same payment pattern. The same penalty and interest regime apply as outlined above.
P11D forms are required if you provide benefits to employees. Some examples include a company car, fuel, private medical insurance, beneficial loans and accommodation. The P11D and P9D also give a breakdown of the expenses provided to each employee. The P11D(b) declares the Class 1A National Insurance payable by the employer.
Forms P11D, P9D, and P11D(b) should be filed by the 6th of July following the tax year. The penalties are similar to those issued for late filing of the Employer Annual Return. A penalty of £100 is issued per month or part month the return is late, for every 50 employees.
Class 1A NICs need to be paid to HMRC by the 22nd of July if paying electronically, or by the 19th of July if paying by cheque.
The same penalties and interest rates apply to Class 1A National Insurance as to that under PAYE.
Late Filing and Late Payment
VAT returns are made quarterly in the majority of cases, but there are monthly and annual schemes.
You must file your VAT return online by the end of the month plus 7 calendar days of the period end. For example for a quarter ended in May, you must file your VAT return by the 7th of July.
If paying by cheque you must pay by the VAT return due date but if paying electronically you can also pay any VAT due by the 7th. Again, HMRC do not accept Faster Payments so you must ensure funds clear by then. Furthermore, if paying by direct debit HMRC will collect payment a further 3 working days after the 7th.
There are different rules depending on your turnover. The table below summarises the rules for surcharges where deadlines are not met:
|Default||Turnover below £150,00||Turnover above £150,000|
|First||No surcharge||No surcharge|
|Second||No surcharge||2% of unpaid VAT(unless below £400)|
|Third||2% of unpaid VAT(unless below £400)||5% of unpaid VAT (unless below £400)|
|Fourth||5% of unpaid VAT (unless below £400)||10% of unpaid VAT|
|Fifth||10% of unpaid VAT||15% of unpaid VAT|
|Sixth and subsequent||15% of unpaid VAT||15% of unpaid VAT|
If you are late with a payment or filing a return, HMRC will initiate a 12 month probation period known as a ‘Surcharge Period’ during which any successive failures will incur the next level of fine as well as resetting the Surcharge Period for another 12 months. The Surcharge Period will come to an end when 12 months of consecutive returns are filed and paid on time.
Surcharges apply if you miss a return or a payment, so even if you pay on time but don’t file the return the surcharges still apply in the same way and vice versa.
Your Company Tax Return must be filed within 12 months of the end of your accounting period.
Penalties for late filing are as follows…
- £100 for up to three months late.
- A further £100 penalty if you file your return more than three months late.
- If your Company Tax Return is late for three or more accounting periods in a row, the fixed penalty increases to £500 for both violations.
- There are additional tax-related penalties of 10% of the unpaid corporation tax where a return is filed between 18 and 24 months after the end of your accounting period and a further 10% where a return is still not filed after 24 months.
Payment of Corporation Tax is due 9 months and a day after the period end, this means that you may end up paying the Corporation Tax before you file your Company Tax Return. Interest is payable on any tax paid late as per the interest rates shown atwww.hmrc.gov.uk/rates/interest.htm.
Personal Tax – Self Assessment
The penalties for late Self Assessment returns are as follows:
- Initial £100 penalty for late filing of the tax return, irrespective of the tax due or if you have paid tax on time.
- If you haven’t filed your return after 3 months daily penalties of £10 per day apply, capped to £900.
- If you haven’t filed your return after 6 months a further penalty of 5% of the tax due or £300: whichever is greater.
- After one year, another 5% or £300 charge, whichever is greater. In serious cases the penalty after 12 months can be up to 100% of the tax due.
The penalties are applicable even if no tax is due.
Interest is applied to any late payment of tax at the rates shown atwww.hmrc.gov.uk/rates/interest.htm. If you don’t pay you the tax you owe for the previous tax year on time by 31st January the following penalties apply…
- If not paid within 30 days a 5% surcharge of the tax due applies.
- If the payment is six months late a further 5% penalty is payable.
- If the tax goes unpaid for 12 months a further 5% surcharge is payable.
Penalties do not apply to payments on accounts that are late but interest does.
In conclusion, operating a small business means that you have a number of deadlines to adhere to. You must ensure that you file all your HMRC forms on time to avoid penalties and make payments on time to avoid interest and surcharges.
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