Penalties and sanctions Part 1

Penalties and sanctions attached to sending inaccurate information, late filing and late payments to HMRC and Companies House

This is the first of four articles about the various penalties you could end up paying HMRC and Companies House. Broadly speaking, all penalties fall into three main categories:

Penalties and sanctions part-1

  1. Late Filing penalties
  2. Late Payment penalties plus interest
  3. Penalties for incorrect returns which are assessed and for which you will be penalised accordingly as a result of negligence, concealment or mistake. Normally called ‘Schedule 36 Penalties’ which are levied based on a tax enquiry.

Please note that all the above penalties can be enforced simultaneously. For example, if your tax return is late and you pay your tax late and there is an irregularity in your return, then you could end up paying all three kinds of penalties.

Without a doubt I would stress that filing an inaccurate return or committing fraud is the biggest mistake a taxpayer can make, so avoid doing so. Personally, I think taxation and tax returns have become so complex that filing accurate returns and accounts requires a professional experienced in taxation. Therefore, choosing the right accountant is very important because they can save you in penalties much more than they will cost you. A cheaper ‘bookkeeper-type’ accountant may cost you more in penalties than you save in accountancy fees!

There are numerous returns to be filed with HMRC and Companies House through the year, and in this edition I will cover self assessment late filing and late payment penalties and penalties for filing late accounts to Companies House. Late filing of you company annual return to Companies House does not result in any penalties but definitely can affect the credit rating of your company.

One last thing: if you have not yet filed your tax return then please do so to avoid penalties. Continue reading further to learn more about:

1. Self-Assessment tax return

Anyone who works for themselves, whether a sole trader, owner of a personal service company or someone who earns additional income, whether an employee being paid through PAYE or a director of a company, must file a self assessment tax return by 31 October for paper submissions and by 31 January for online submissions. You must then pay half of any tax due (known as payment on account for the following tax year) by 31 January and then again by 31 July. Just bear in mind that a self assessment tax return filed six months late could attract a penalty of at least £1,300 even if the tax due is zero.

Penalties for Late Filing

Late filing penalties are separate to late payment penalties. If you are one day late there is a minimum penalty of £100, even if no tax is due.

  • 3 months late: daily penalty of £10 a day, up to a maximum of £900.
  • 6 months late: further penalties at either 5% of tax due or £300, whichever is greater.
  • 12 months late: another penalty, a further 5% of tax due or £300, whichever is greater.
  • Note that in serious cases, a penalty of up to 100% of tax due can be charged.

Penalties for Late Payment

Even if you have filed your tax return on time you will pay a penalty if you fail to pay the tax due on time, the penalties are as follows:

  • 30 days late: Initial penalty of 5% of tax unpaid at that date.
  • 6 months late: A further penalty of 5% of tax that remains unpaid.
  • 12 months late: A further penalty of 5% of tax that remains unpaid.

Please note that until the amount outstanding is paid in full, interest will be charged on all outstanding amounts, including unpaid penalties.

Let’s take a look at a couple of examples, first off Ray:

Example 1:

Ray’s tax liability for year ended 5 April 2012 is £2,000.

He filed his tax return online on 15 March 2013.

He paid the tax due on 15 August 2013.

The Penalties Ray will pay are as follows:

Late filing penalty: as his return is over a day late but less than 3 months, Ray’s penalty is limited to £100; the daily rate penalty does not apply as his return was filed within 3 months of the due date.

Late payment penalty: £100, Ray is 30 days late so he must pay the 5% penalty on £2,000 = £100.

Six months late: £100, Ray paid the tax due on 15 August 2013 more than 6 months late; so he will pay a further 5% penalty = another £100. Poor Ray, his total penalties add up to £300.

But it gets even worse if you file your tax return late even if you are not late with the payment. It used to be that if you were late filing and owed no tax you wouldn’t pay a fine, but now, whether or not you owe tax, you will immediately pay the £100 fine even if you file your tax return online one minute late. 

Let’s take a look at Camilla’s situation:

Example 2:

Camilla’s tax liability for year ended 5 April 2012 is £2,000.

She filed her tax return online on 15 August 2013.

She paid the tax due on 15 March 2013.

The Penalties Camilla will pay are as follows:

Late filing penalty: £100, Camilla’s return is more than a day late but less than 3 months late.

Late filing penalty: £900, her return is 3 months late, so she pays the maximum penalty of £900.

Late filing penalty: £300, Camilla’s return is 6 months late so she pays an additional penalty of £300.

Late payment penalty: £100, Camilla is 30 days late so she pays 5% of £2,000 which is £100.

Camilla’s in big trouble, just look at her penalties, they total £1,400! The penalties for unpaid tax are high enough, but the penalties for non-filing are HUGE, and will seriously affect your business.

  2. Annual Accounts to Companies House 

You must file your annual accounts with Companies House nine months from the end of your accounting period, known as the Accounting Reference Date (ARD), set at incorporation. Failing to file your accounts or your annual return is a criminal offence and the former will attract a penalty. So, for example, for the period 1 December 2011 to 31 December 2012, the ARD is nine months from 31 December 2012, which means that you MUST file your accounts with Companies House by 30 September 2013.

2a. Annual Return to Companies House

Filing your annual return with Companies House is different from filing your annual accounts. The annual return is a sort of snapshot of the company management structure, providing details of the directors and shareholders. Your annual return must be delivered to Companies House every 12 months, normally within 28 days of either the anniversary of the incorporation of the company or on the anniversary of the previous annual return. For example, if the company last filed its annual return on 5 October 2012, the due date for 2013 will be 28 days from that anniversary: 2 November 2013. There are no penalties for delay in submission of annual returns but delays jeopardise the credit rating of the company, and non-filing can result in your company being struck off the Companies House register.

Please note that there are no exceptions to this rule: the ARD date is fixed with Companies House at incorporation. Any change to it must be notified in advance. The penalty tariff for late filing of your accounts at Companies House is hefty:

Penalties for Late Filing of Annual Accounts

  • Up to 30 days:                                    £150
  • Up to 3 months:                                £375
  • Up to 6 months:                                £750
  • In excess of 6 months:                   £1,500

This ties-up much of what you need to know about the rules regarding compliancy, filing and payments for self assessment tax returns and annual accounts and annual returns to Companies House. Next time we’ll look at corporation tax returns and accounts, VAT and Payroll.

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