Late returns can be subject to a mix of fixed and tax geared penalties. What penalties apply for late filing? Which penalty will apply and when? 

At a glance

The current late filing penalty regime was introduced by section 106 and Schedule 55 of 2009 Finance Act.

The regime was rolled out gradually as follows:

Return

Sch 55 regime applies
from

Old rules apply
to returns including

Income tax and CGT

2010/11 & later returns (filing from 31/1/2012)

2009/10 (filing up to 31/1/2011)

Non-residents CGT returns 2015/16 & later returns  n/a
Corporation Tax

Still within Sch 18 FA 1998 rules (para 17 and 18)

To date

PAYE

6 April 2013

2012/13

CIS

October 2011

2009/10

subject to transitional measures

ATED

1 April 2013

n/a

 

Penalties under the Sch 55 penalty regime

Penalties are all charged at the same rate for all the taxes except for:

  • PAYE: see below
  • CIS: see below
  • Offshore income: see below

Lateness

Penalty

Miss filing deadline

£100

3 months late

Daily penalty £10 per day for up to 90 days (max £900)

6 months late

The greater of 5% of tax due or £300

Subject to special rule which limits to:

  • 100%* / 150%-200%** of tax due, if there is more than one tax geared penalty is charged

12 months late

The greater of 5% of tax due or £300

Subject to special rule which limits to:

  • 100%* / 150%-200%** of tax due, if there is more than one tax geared penalty is charged

Special rule also if the taxpayer is held to be deliberately withholding information that would enable HMRC to assess the tax due.

12 months & taxpayer deliberately withholds information

Based on behaviour:

  • deliberate and concealed withholding 100% of tax due, or £300 if greater.
  • deliberate but not concealed 70% of tax due, or £300 if greater.

Reductions apply for prompted and unprompted disclosures and telling, giving and helping. *

 

*The penalties for being 6 months late and 12 months late are subject to the interaction rule in para 17(3) and taken together they should not exceed 100% the tax due. See Penalties, Grounds for Appeal, HMRC error

**Higher penalties apply for returns of category 2 and 3 information.

See:

Penalties for late filing of Non-Resident CGT returns

These are calculated under Schedule 55 (as above), although subject to special non-statutory transitional provisions:

  • No penalties were charged for late filing before 6 May 2016.
  • In May 2017 HMRC confirmed that it would not charge daily penalties.

Appeal against NRCGT late filing penalties, see

Penalties for late PAYE returns

Sch 55 penalties were to apply to PAYE from 2013/14.

Under the change over to Real Time Information (RTI) filing, sch 55 does not apply until March 2015.

PAYE late fiing penalty rates 

 No of employees  Monthly penalty
 1-9  £100
 10-49  £200
 50-249  £300
250 + £400


This fixed penalty applies to late returns for each month after an employer has notified HMRC of their liability and to months that they have missed before that notification. The first month is excluded for the first failure in a tax year

For PAYE Annual Returns due for 2012/13 the late filing penalty is £100 per month, per 50 employees.

If the filing deadling of 19 May is missed the fine will be £100, even if only a part-month late.

HMRC will not raise a penalty notice until you are four months late, and it will not do this until September, so if you forget to file a return you will be probably incur a penalty of £400.

For further information on RTI penalites, see Tax Penalties RTI

Penalties for late CIS returns

Lateness

Penalty

Miss filing deadline

£100

2 months

£200

6 months

5% of tax due or £300, if greater

12 months

5% or £300 will apply, unless the taxpayer is held to be deliberately withholding information that would enable HMRC to assess the tax due.

Reductions apply for prompted and unprompted disclosures and telling, giving and helping

12 months & taxpayer deliberately withholds information

Based on behaviour:

  • deliberate and concealed withholding maximum of 100% of tax due, or £3,000 if greater.
  • deliberate but not concealed maximum of 70% of tax due, or £1,500 if greater.

 

12 months: gross paid recipients

Based on behaviour:

  • deliberate and concealed withholding £3,000.
  • deliberate but not concealed £1,500.

 

 

CIS: failure to register

When the first CIS return is filed the total penalty for all defaults is a maximum of £3,000 and the tax geared penalties cannot apply.

CIS: late filing transitional measures

HMRC announced that transitional measures applied to certain new contractors who were charged penalties in 2009/10 and 2010/11.

Offshore income and gains

The 2010 Finance Act modified Sch 55 introducing toughter penalties for category 2 and 3 offences (relating to offshore income and gains). The effect is that penalties for inaccuracy increase to 45% for a careless but not concealed error to a maximum of 200%.

See Penalties: Offshore Income, CGT and IHT

Determination of penalty when return is made

HMRC may determine the amount of tax due in order to raise a tax geared penalty. The amount will be re-assessed when the taxpayer makes the return.

Appeal and excuse

No penalty applies where the taxpayer satisfies HMRC or the tribunal on appeal that he has reasonable excuse for the failure.

  • Insufficiency of funds or relying on another to do something is not a reasonable excuse.
  • Following the end of the reasonable excuse circumstances the failure has to have been remedied without unreasonable delay.
  • Proof of posting and other excuses, see Tax penalties: grounds for appeal

Daily penalties

There have been various cases which look at whether penalties have been correctly issued, see  Appeals: Grounds for appeal toolkit

What's new?

Coronavirus

In March to June 2020 the government made certain relaxations to the tax payment regime as a result of the coronavirus (COVID-19) pandemic, these include:

  • Deferral of Income Tax payments on account due by 31 July 2020 for the 2019/20 tax year under the Self Assessment until the 31 January 2021. No penalties will be charged in the deferral period. See COVID 19: Deferring Income Tax payments
  • Time to pay assistance: see COVID-19: Time to Pay
  • Appeals: Reasonable excuse:  updated guidance on when taxpayers have a reasonable excuse for the late filing of returns or late payment of tax to specifically include being affected by Coronavirus. See Coronavirus is a reasonable excuse
  • Appeals: Deadline extended: for appealing tax penalties and decisions from 30 days to up to 3 months where the taxpayer or their business has been affected by COVID-19. See COVID-19: Tax appeal deadlines extended.

Proposed changes to the penalty regime

Measures in Finance Bill 2019 which proposed to replace the schedule 55 FA 2009 regime with a points based system of late filing penalties: designed for Making Tax Digital and to initially apply to Income Tax Self Assessment and VAT, were shelved in Budget 2018. HMRC have said that they will instead be included in a future finance bill.

The new penalty system is expected to be effective from some time in 2022/23 following the revised commencement timetable for Making Tax Digital for Business.

It is anticipated that once the new system is in place, a one year period of grace will apply to MTD filings, as the legislation specifies HMRC can delay to allow for a ‘familiarisation period’

The new system will replace the schedule 55 FA 2009 penalty regime for the relevant returns.

  • A point will accrue for each failure to submit on time.
  • When the point threshold is reached, a penalty will be charged.
  • Points will be reset after a period of good compliance.

See Penalties: Late Submission of regular returns (Making Tax Digital)

Comments (1)

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I have read your article in relation to late filing penalties, particularly with regard to the CIS penalties.

The section relating to the penalties that could be applied where a contractor has failed to register states:

"CIS: failure to...

I have read your article in relation to late filing penalties, particularly with regard to the CIS penalties.

The section relating to the penalties that could be applied where a contractor has failed to register states:

"CIS: failure to register

When the first CIS return is filed the total penalty for all defaults is a maximum of £3,000 and the tax geared penalties cannot apply.
"

I am not certain that this is correct. Having read the legislation (FA09 Sch55 Paragraph 13), it is only the fixed initial penalties (ie the £100 and £200 penalties) that would be capped but the tax geared penalties (ie 5% of the amount of deductions that should have been shown on earlier returns) will apply and the 5% tax geared penalty takes precedent over the £300 fixed penalty where returns are six or 12 months late in this case.

Given my thoughts, I wondered whether I was missing something.

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