Sarah Laing looks at the interest and penalty charges that may be encountered for late filing and payment of tax as the 31 January self-assessment return deadline approaches.
HMRC operates a severe penalty regime to ‘encourage’ compliance with self-assessment requirements. Failure to submit a return on time may attract a late filing penalty.
Late returns
The exact amount of any late filing penalty depends on how late the return is:
|
Length of delay |
Penalty |
|
1 day late |
A £100 automatic fixed penalty applies, even if the taxpayer has no tax to pay or has paid the tax owed. |
|
3 months late |
£10 for each following day – up to a 90 day maximum of £900. This is in addition to the fixed penalty above. |
|
6 months late |
£300 or 5% of the tax due, whichever is the higher. This is in addition to the penalties above. |
|
12 months late |
£300 or 5% of the tax due, whichever is the higher. This is in addition to the penalties above. |
In serious cases, HMRC may seek a penalty of up to 100% of the tax due instead. In some cases, the penalties can be even higher than this. These are in addition to the penalties above.
Late payments
The following penalties apply to late balancing payments of income tax and late payments of capital gains tax under self-assessment (i.e. based on tax returns for individuals or trustees, etc., and in certain other circumstances).
|
Length of delay |
Penalty |
|
30 days |
5% of the unpaid tax |
|
6 months |
5% of the unpaid tax (additional) |
|
12 months |
5% of the unpaid tax (additional) |
Penalties are payable within 30 days from the day on which the penalty notice is issued. There is a right of appeal against both the imposition of a penalty and the amount involved.
HMRC may reduce a late payment penalty in ‘special circumstances’, which does not include an inability to pay. In addition, a defence of ‘reasonable excuse’ may be available.
Prospective late payment penalties
The government intends to introduce a new aligned penalty regime for late payment of income tax due under self-assessment and corporation tax. The exact details of the new system and the commencement date have yet to be confirmed. The proposed regime will comprise two penalty charges.
The first penalty charge will be payable 30 days after the payment due date and will be based on a set percentage of the balance outstanding, as follows:
|
No of days after payment due date |
Payment status |
Penalty |
|
0-15 |
Payments made Time to pay arrangement (TTP) agreed |
No penalty payable Penalty suspended |
|
16-30 |
Payments made TTP agreed |
Penalty calculated at a reduced percentage Penalty calculated using reduced percentage and suspended for the amounts subject to TTP |
|
Day 30 |
N/A |
First charge calculated based on payment activity in the month |
A second penalty charge will be payable based on amounts outstanding from day 31 after the payment due date until the outstanding sum is paid in full. Any time to pay (TTP) agreed during the period will result in the suspension of future penalties from the date the TTP was agreed.
Penalties must be paid or appealed within 30 days of the date of the penalty notice.
The penalty amounts have not yet been announced.
Interest on late payments
For income tax purposes, interest is normally charged on overdue tax from the due date of payment (31 January or 31 July) to the date the tax is actually paid. Interest charges also apply to late payment of penalties and in respect of tax return amendments and discovery assessments.
The rate of interest charged on unpaid tax is currently 3.25% (from 21 August 2018). Interest is payable gross and is not deductible for tax purposes.
Practical tip
HMRC provide an online penalty calculation tool. ‘Estimate your penalty for late Self Assessment tax returns and payments’ can be accessed here.
