HMRC Penalties: a carrot or a stick?

HMRC Penalties

In a recent document inviting views and comments by 11 May 2015, the Revenue ask taxpayers and agents what they think about ideas they are having on potential changes to the penalty regime, introduced under the HMRC Powers Review 2005-2012.

As HMRC become more digitally savvy, in an attempt to help taxpayers get more things right first time, they are inviting comments on how tax penalties are to be applied, if the nature of the punishment should fit the nature of the crime and the deterrent effect of the severity or size of the penalty. Are warnings followed by financial pain a better option in keeping the majority of taxpayers on-side?

It’s unclear whether HMRC’s penalties are more useful in showing the compliant majority that the tardy minority don’t get away scot free, or as an incentive to the majority to pull their finger out. It’s the principle, not the money, say HMRC.

HMRC’s master plan is to promote good compliance by giving explanations and information; prevent mistakes early by identifying risks and correcting errors; and respond in a tailored manner using better data. This entire compliance strategy is based upon their successful transition into a digital services provider maintaining accurate and up to date records of their ‘customers’’ tax affairs.

In an organisation as large and complex as HMRC, that digital conversion cannot be taken for granted. Remember the introduction of RTI? The penalty regime had to be continually delayed by because the Government’s reporting systems were unprepared and unsuitable for meeting their own deadlines. I don’t recall them imposing a penalty on themselves however!

That said, there is much that is sensible in a discussion of high level issues. The implication is that the highest penalties should apply to deliberate cases of evasion or avoidance and should increase based on the scale of tax lost and in cases of persistent or recurring offences. Deliberate and concealed mistakes should attract the biggest punishments whilst simply being careless does not necessarily incur a penalty.

There is clear intention in the words to not portray penalties as a means of collecting revenue. They have far greater value in acting as a deterrent in the face of abuse and I am happy to support a tax regime which protects the vulnerable taxpayers from forgetfulness, careless mistake and aberration and at the same time heavily punishes deliberate or persistent delay in the provision of required information.

If this sentiment translates into an environment where HMRC use their ever growing digital prowess to warn taxpayers in advance that they are about to miss a filing deadline, have just missed one or need to act before they receive an automated penalty then HMRC may be able to have their cake and eat it by driving up compliance and timely filing without having to issue and administer thousands of fixed penalties for small amounts that are difficult to collect or in some cases justify.

If HMRC are truly exploring a digitalised customer service approach to dealing with taxpayers, that genuinely helps us understand our obligations, merges all taxes, payments and compliance into a single enjoyable experience for all, and is one which accepts that on occasion humans forget or just run out of time maybe the carrot is mightier than the stick after all?

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

Payment difficulties – Self Assessment 2015

Payment difficulties – Self Assessment 2015

Many contractors and freelance workers submit a Self-Assessment Tax Return. The deadline for filing the Return for the year ended 5 April 2014 and also for having paid any additional tax that’s not collected via the PAYE system is the end of this month (January 2015).

The tax system requires that you pay not only any balancing tax liability but can also require that you make a second payment on account for the current tax year (5 April 2015), both at the end of January, with a second payment on account for the current tax year next July.

If you don’t pay your tax liability on time HMRC will automatically charge you interest from 1 February at 3% per annum, and you would expect that to be the case, but what many contractors don’t realise is that there are additional surcharge penalties that are automatically charged for unpaid tax after 30 days, 5 months and 11 months.

Each penalty is 5% and so your unpaid tax liabilities can rapidly increase significantly.

So, what do you do when you cannot pay?

key-points4

Our advice for contractors who find themselves in the unfortunate position of not being able to meet their tax liabilities in time there are a few points to consider which might help:

Speak with your contractor accountant – as soon as you’re aware that you will have difficulty with paying your tax liabilities let your contractor accountant know. They will be able to advise you in detail of the options available as they apply to your specific financial position and can help you establish exactly how much tax is due and by when.

Contact HMRC – There is some flexibility possible, depending on your circumstances, so it’s worth exploring your options.  For example:

  • If your notice of tax changeability was issued late in the year, you have three months from the issue date until the tax is due. If this is the case, it may mean that your personal tax due date for the current tax year is after 31st January.
  • If amendments are made to your tax changeability after 1st January additional tax chargeable as a result will not be due until 30 days after the amendment was made. There will, however, still be interest charged if you pay the additional amount after 31st January.
  • HMRC will usually accept if you cannot pay by 31st January but promise to pay the full amount owed within  30 days.
  • If you cannot pay within  30 days HMRC will consider special circumstances and may reduce penalties in some cases, so speak with them if this might apply to you.
  • There are also a number of schemes available which can help you spread out your tax payments as long as you are currently paid up to date. HMRC are obliged to at least consider reasonable payment arrangement proposals. However, if an arrangement is spread over more than 3 months, HMRC will want evidence of income, expenditure and any savings you have.

 

Being unable to pay your tax liabilities can be extremely stressful, but by taking action as you soon as you become aware there’s an issue you may find there are workable solutions available.

Are you a contractor in need of some advice on your Self Assessment Tax Return? Intouch Accounting are contractor accounting experts, able to provide professional support to Limited Company contractors – leaving you to focus on the matter at hand without needing to worry about your finances.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.

New contractors’ guide to Tax Return Deadlines

New contractors’ guide to Tax Return Deadlines

With the 31st of January deadline for online self-assessment fast approaching, it is important that all new Limited Company contractors are aware of all personal and company tax return deadlines.

Filing all personal and company tax information required and making payment to HMRC within their specified deadlines is vital. Firstly, it ensures you don’t end up having to pay out for late penalty amounts. It’s also good business practice to keep within these deadlines as it will mean that you’re generally keeping your contractor accounting and tax affairs fully up to date. Ideally you should be aware of the key deadline dates which apply to you, but if you’re unsure a contractor accountant will be able to help.

As a Limited Company contractor you will be required to file a number of different types of tax return. The specific returns applicable will partly depend on the size and type of business involved but most contractors will usually need to file the following:

  • Self-Assessment tax return – relating to your own personal taxable income.
  • Employer related tax returns e.g. National Insurance Contributions (NIC), Pay as you earn (PAYE) and other employee related returns for yourself (as an employee of your own company) and any other employees.
  • Company tax return for your business.
  • VAT return(s) for your business if your company is VAT registered.

HMRC specifies a number of different deadline dates for each of these returns. A list of key dates for the main tax return categories is given below.

Tax Return filing and payment deadlines

Self Assessment Tax Return:

The end of the tax year is 5 April. The start of each new tax year is 6 April. You will need to notify HMRC that you need to complete a self-assessment tax return for the previous tax year’s income.

Table 1

Employer related filing and payment deadlines

 Employer PAYE submissions in real time became effective from 6 April 2013. Employers now report their payroll information online directly to HMRC by submitting Full Payment Submissions (FPS) and Employer Payment Summaries (EPS).

table 2

Company Tax Return filing and payment deadlines

Corporation Tax is payable by all active profit making companies. The amount owed must be paid nine months and a day after the end of the company’s accounting period end date. This means that the actual deadline dates will vary from business to business.

box 3

 VAT Return filing and payment deadlines

There are no fixed dates in the year for paying VAT.  However, depending on the type of business and the VAT options you choose you could be filing and paying monthly, quarterly or annually.

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Intouch Tax Returns Service

At Intouch Accounting we make your life easier, we offer tax return administration as a standard part of our comprehensive Monthly Service package (£98 + VAT per month). This includes filing all HMRC and Companies House tax returns, including your personal self-assessment tax return. Contact us to find out more about our services.

 

This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.