We all do our best to avoid it, but sometimes small businesses and the self-employed can end up with a penalty from HMRC.
HMRC penalties can be expensive and stressful – but, thankfully, sometimes they can be appealed. If you have a reasonable excuse, your penalty may be amended or waived after an appeal.
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It’s important to understand the common mistakes that can lead to a penalty. Reasons HMRC might issue a penalty include:
You need to register for Self Assessment by 5 October – read our guide on how to register and complete your Self Assessment if you’re unsure of what you need to do.
The deadline for filing your tax return is 31 October for paper forms and 31 January for online returns. You must pay your tax bill by 31 January.
On 25 January 2021, HMRC announced that they won't be issuing any late filing penalties as long as you file online by 28 February. The deadline for paying your tax bill is still 31 January, so interest will be charged from 1 February on any outstanding tax owed. You can set up a payment plan if you need more time to pay.
|How long since the deadline?||Penalty|
|Three months||£10 for each additional day, up to 90 days – plus the previous penalty|
|Six months||Whichever is higher of £300 or 5 per cent of the tax you owe – plus the previous penalties|
|12 months||An additional £300 or 5 per cent of the tax you owe – or, in some circumstances, 100 per cent of the tax you owe|
The way that HMRC applies penalties is changing to a points-based system from April 2022.
You’ll have to pay a penalty, plus interest, if you pay your tax bill late. If you miss a deadline you must contact HMRC as soon as possible. Use this tool on gov.uk to estimate your penalty if you don’t pay.
If you’re a limited company, your Corporation Tax return is due 12 months after the end of the accounting period it covers, and the deadline to pay your Corporation Tax bill is usually nine months and one day after the end of your accounting period.
|How long since the deadline?||Penalty|
|Three months||Another £100|
|Six months||HMRC's estimate of your Corporation Tax bill plus 10 per cent of the unpaid tax|
|12 months||Another 10 per cent of any unpaid tax|
We all know that sometimes the unexpected happens and life events can send us off course. That’s why HMRC details what it deems a ‘reasonable excuse’ for late filing or payment.
If you receive a penalty, there’s a chance you'll be able to appeal if there were extenuating circumstances that prevented you from filing your tax return on time.
Examples of reasonable excuses include:
Your case will be considered on an individual basis, and HMRC will still want to see that you took reasonable care to meet your tax obligations.
The government has announced that they will consider the coronavirus pandemic as a reasonable excuse for late filing. You can also set up a payment plan if you need more time to pay.
If you can prove that you’ve been impacted by Covid-19, you may be able make a successful appeal against HMRC. As this will be considered on a case-by-case basis it’s a good idea to speak to HMRC before the deadline to clarify whether you have a ‘reasonable excuse’ – and to pay on time if you can. Find out more about coronavirus support.
The appeal process varies depending on the penalty you’ve received. You should usually appeal within 30 days of the date on your penalty notice. However, if you were affected by coronavirus and your penalty was issued anytime from February 2020, then HMRC will allow an additional three months for you to send an appeal.
To appeal against the £100 fine for filing your Self Assessment tax return late, you first need to have either filed your return or told HMRC you don’t need to complete one.
You can use the Self Assessment online portal to appeal any penalties from 2016-17 tax year or later. If you have an earlier penalty, or prefer to use a postal form, you can download form SA370 and send the completed form to HMRC.
You can use your HMRC online account if you’re a business appealing against a penalty for filing a VAT or Corporation Tax return late.
There are also specific online forms for certain types of appeal, which you’ll need to complete online and print before posting to HMRC. Examples of claim forms include:
If you’re an employer appealing against a penalty relating to PAYE, you should use your account at HMRC’s online PAYE for employers portal.
Your appeal will be investigated by an HMRC tax officer who wasn't involved in the original penalty decision.
Alternatively, if you’re appealing a penalty related to an indirect tax such as VAT or excise duty, you might choose to appeal directly to the tax tribunal. You can also request a review from HMRC if you’d prefer.
If you disagree with HMRC’s review of your penalty, you can make a further appeal to the tax tribunal. This is an independent body that’ll take evidence from both parties and then make its own decision.
If you want to take your case to tribunal, you must do so within 30 days of the review decision.
Alternatively, you might consider applying for alternative dispute resolution (ADR) to avoid a court hearing. You can apply for ADR if you're trying to resolve a dispute with your personal tax and haven’t been successful through HRMC’s appeal process.
During ADR, an impartial third party will act as a mediator between you and HMRC. The idea is that they will help you identify the areas that need attention and, where relevant, help to re-establish contact between the two parties.
ADR is particularly useful if you disagree with HMRC over the facts of your case, or if communication between you and HMRC has broken down.
However, you should note that ADR isn’t an option if you’re appealing a fixed penalty, or if you’re disputing your payment deadline.
We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer
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