What can you do about late penalty charges?

HMRC systems are largely automated and are quick to lash out a penalty when they detect a late tax return filing or a late payment, but if your business is having cash flow issues what can you do and which tax do you need to prioritise?

You should always be aware of when you must submit a tax return by and have the means to pay your tax on time, but different taxes have very different penalties. Consider the following penalties;

PAYE

 Number of employees  Fixed Penalties for late filing
 From 1 – 9  £100
 From 10 – 49  £200
 From 49 – 249  £300
 250 or more  £400

 

Construction Industry Scheme

Time Penalty for failure to file Details
Missed Deadline £100 Fixed Late Filing Penalty
Two Months + £200
Six Months + £300 or 5% of Tax Whichever greater
Twelve Months + £300 or 5% of Tax Whichever greater but a higher penalty can be levied for deliberately withholding information.

 

Repeat defaults for late payment of PAYE or CIS in a single tax year can result in a further 1% – 4% penalty.

Corporation tax returns

based on company profit, due 12 months after accounting period end.

Time Penalty Details
Missed Deadline £100

£500 for three consecutive offences

Fixed Late Filing Penalty
Three Months + £100

+ £500 for three consecutive offences

Six Months 10% of ‘due’ tax HMRC will apply a penalty on unpaid tax at this date

VAT

Default triggered by late filing or non payment. Penalty is calculated as the percentage of VAT due.

Number of defaults in a rolling surcharge period Penalty if turnover is less than £150,000 Penalty if turnover is greater than £150,000
First None None – but 12 month surcharge period begins
Second None – but 12 month surcharge period begins 2%
Third 2% 5%
Fourth 5% 10%
Fifth 10% 15%
Sixth or more 15% 15%

When reviewed together it is clear that VAT defaults can quickly escalate into severe penalties, there are no small fixed penalties for late filing that the other taxes have.

Every time there is a VAT default a ’12 month surcharge period’ is refreshed and remains in place until the tax payer has complied fully for a full year with their filing and payment deadlines.

If you cannot pay your VAT bill in full, it is important to still submit your returns on time and pay as much of the liability as possible to reduce potential penalties. Remember that the penalty will only apply to the balance outstanding.

Early communication and being open with HMRC is the best approach to manage cash flow for paying taxes. HMRC’s time to pay department can help ease large tax burdens over a number of months without incurring the effects of penalties and interest.

Remember also that VAT is a sales tax, if a business makes a loss it will not have a corporation tax liability, but if a customer pays your business £12,000 then £2,000 of that belongs to HMRC regardless, it should be ring fenced from other business expenses until the VAT payment day.

I have not covered the penalties for inaccurate returns on purpose. The point of this brief article was to highlight the significant discrepancies between the different tax penalties applicable solely to the administrative side of filing returns and making payments.