Penalties and sanctions Part 3

More about the penalties for late filing and late payments to HMRC and Companies House

This is the third of four articles about the various penalties you could end up paying if you file documents late with HMRC or Companies House or pay any monies that are due late. The list of penalties for late filing and payments is long; we’ve already covered self assessment tax returns, your annual accounts to Companies House, VAT and Payroll and now we’ve almost reached the end. This email explains the penalties that apply to corporation tax returns and accounts, late filing and payment penalties associated with P11D (recording expenses and benefits), and those connected to the Construction Industry Scheme (CIS).

Penalties and sanctions part-3

1. Penalties for late filing of Corporation Tax Return and Accounts to HMRC

Penalty for late filing of Corporation Tax Return

Both your corporation (company) tax return and accounts to HMRC are due 12 months from the end of the accounting period. For example, for the period 1 December 2011–31 December 2012, the due date for submission of corporation tax to HMRC is 31 December 2013. Delay in submitting your corporation tax return by the due date results in:

  • A minimum penalty of £100;
  • Which can rise to £2,000 as the penalty due is calculated as a percentage of the total tax owed plus the frequency of delays.

For example, if your company tax return is late for three or more accounting periods in a row, the initial flat-rate penalty increases to £500 with a further £500 charged if you file your return more than three months late.

Penalty for late Corporation Tax Payment

Your corporation tax payment is a different matter – showing all the cunning and underhandedness for which HMRC is known! Your corporation tax payment is due three months earlier than the submission of your corporation tax return for that year. The due date for payment of corporation tax is nine months from the end of the accounting period, so, for example, if the accounting period runs 1 December 2011–31 December 2012, your payment is due by 30 September 2013. Be warned: late payments attract a penalty where interest is calculated on the amount owed.

If HMRC send you a "Notice to deliver a Company Tax Return" and you don’t file it, a penalty will be charged. HMRC will tell you how much corporation tax to pay: this is known as a ‘determination’. Along with the determination, HMRC will send you a "Notice to Pay", and you must pay the corporation tax due immediately. HMRC will charge interest on the back-tax to the normal due date for payment — normally nine months after the end of your company’s corporation tax accounting period. This determination takes the place of the amount of tax you would have calculated had you filed a company tax return.

HMRC makes a "best estimate" of the amount of corporation tax you need to pay, based on known facts about your company or organization. The "best estimate" is based on, for example:

  • Your company profits;
  • Items such as losses carried forward from earlier accounting periods;
  • The rate of corporation tax HMRC thinks your company should pay.

One thing you can be absolutely sure about is that HMRC will estimate the amount of corporation tax you owe by balancing up rather than down AND your company will immediately be sited on their radar as one that does not take its tax matters seriously. Clearly, you do not want this sort of attention, especially in the current climate, so beware and be aware.

I will come to the penalties for inaccurate information on company tax returns in the fourth and final round up of penalties, sanctions, fines and prosecutions. This is because they come within penalties that are assessed, and for which you will be penalised accordingly, as a result of negligence, concealment or mistake. Normally called "Schedule 36 Penalties", these are levied based on a tax enquiry. So look out for this next week.

2. Penalties for late filing of PAYE to HMRC including P11D/P11D and CIS

For the period April 2012 to March 2013 all businesses that pay benefits and expenses to directors or employees must file a P11D return to HMRC by 6 July 2013. However, companies that hold a dispensation certificate do not always have to file a P11D return if all payments of expenses are covered by the dispensation notice.

Penalty for late filing of P11D and P11D(b)

Ideally, businesses that hold a dispensation certificate will not pay any taxable benefits to employees/directors and reimbursement of expenses will, therefore, be covered by a dispensation certificate. Companies that do pay benefits to employees or directors must file a P11D(b) return and must issue a P11D certificate to its employees. Companies that reimburse expenses and do not have a dispensation certificate must also file P11D (b) return.

After the end of the tax year, form P11D must be filed for each employee/director to whom expenses and benefits have been paid during the tax year. One copy of a P11D(b) must also be filed to declare the overall amount of Class 1A National Insurance contributions due on all the expenses and benefits provided and detailed on form P11D. P11D submissions must reach HMRC by 6 July following the end of the tax year. Payment of the Class 1A National Insurance Contributions declared on form P11D(b) must reach HMRC by 22 July, or by 19 July if paying by cheque.

If you do not file the P11D and P11D(b) by 6 July HMRC will wait until 19 July before applying a penalty. If you do not pay any money you owe by the due date you will incur another penalty. The same deadline applies regardless of whether you file the form online or send HMRC a paper version.

HMRC will remind you at various times in the tax year that your return is due or overdue:

  • An initial notification is issued about the need to submit your return at the end of the tax year;
  • A further reminder is issued at the end of June;
    • Where a return has not been received by 19 July HMRC will write to advise that a penalty may already have been incurred and that the return must be submitted by 6 August to avoid further penalties.

Penalties accrue for each month (or part month) that a return remains outstanding after the filing date. So, if your P11D remains outstanding for more than four months, a penalty notice will be issued shortly after 6 November and again the following March and July. The penalty notices will show the amount of penalty outstanding.

The penalty for late filing of your P11D is the same as that detailed last week in relation to PAYE, and is calculated at £100 per 50 employees for each month or part month you delay filing your P11D(b).

The late payment penalty regime for P11D and CIS are the same under the PAYE rules, so I’ll hold fire for a moment on that while we cover the penalty regime that applies for late filing of CIS returns.

 3. Penalties for late filing of CIS Returns

The Construction Industry Scheme (CIS) is a tax-deduction scheme that involves tax being deducted at source from payments which relate to construction work. CIS does not apply to payments made to employees as employees are covered by PAYE and tax deduction is at source. The CIS regime applies to all payments made under a construction contract where one party is a contractor and the other party is a subcontractor.

Contractors include property developers and builders and businesses which are not in the construction business but which have spent on average £1 million or more on construction operations for the last three accounting periods.

A subcontractor is a person receiving payments under the construction contract and someone who is obliged to carry out construction work for the contractor, providing staff or subcontracting work to another party. For this category of tax payer a monthly CIS return must be sent to HMRC no later than 14 days after the end of the tax month to which it applies. A tax month runs from the sixth day of one month to the fifth day of the following one, so this means that the return must be with HMRC by the 19th of each calendar month even if no subcontractors were paid in the last tax month. A "nil return" must be sent to HMRC regardless, and the same deadline applies.

Penalty for late filing of CIS

The penalty regime for late filing and payments can be avoided by submitting the return and the payment promptly, but if you do miss the deadline, the penalties are pretty stiff and relate to each return that is filed late. Remember that the filing date is always the 19th of each month whether or not you have paid any subcontractors:

  • Overdue – £100;
  • 2 months late – £200;
  • 6 months late – 5% of the tax due, subject to a minimum of £300.

For forms that are over 12 months late, the penalties range from a minimum of £300 to £3,000 under Schedule 36 rules, which I will explain next week.

Penalties for late payments of all PAYE amounts including P11D/P11D(b) and CIS

There are late payment penalties on all PAYE amounts that are not paid in full and on time, including National Insurance Contributions outstanding on P11D(b) submissions and late payments of CIS. You will not be charged a penalty if only one amount is late in a tax year unless that payment is over six months late. But remember, these penalties apply to all PAYE amounts outstanding.

The penalty will depend on how late it is and how many times your payments are late in a tax year. So, discounting the first late payment for which you won’t be charged:

  • If you make between 1 and 3 late payments you will be charged 1% of the total amount that is late in that tax year;
  • If you make between 4 and 6 late payments you will be charged 2%;
  • If you make between 7 and 9 late payments you will be charged 3%;
  • And for 10 and more 4%.

Remember that the payment is due on the same date you file the return, that is, the 19th of each month: a penalty of 5% applies to amounts unpaid for more than 6 months after the penalty date and a further penalty of 5% applies after 12 months.

I’ll leave you to digest all of this for now. This brings us to the end of what I hope has been a useful round-up of late filing and late payment penalties to HMRC and Companies House. Next week we’ll run through the penalties and sanctions that relate to incorrect returns. These are assessed and penalised accordingly on the sliding scale of negligence, concealment or mistake. Normally called "Schedule 36 Penalties", they are levied based on a tax enquiry under Code of Practice (COP) 8 and 9.

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