If you are self-employed or a business owner, you’ll need to complete and file a tax return for each tax year. You need to be as clear and accurate as possible on your tax return so that you ensure that you are paying exactly the right amount. You also need to file your return on time to avoid having to pay a penalty.

There are various reasons that you might have to pay a penalty fee on your tax return, including:

  • Filing your tax return late – the deadline is 31st October for paper forms, and 31st January to file your return online.
  • Filling out your return incorrectly – this could be interpreted by HMRC that you have been careless in filling out your form or that you have deliberately left information out.
  • Paying your tax late
  • Failure to notify – this is when you start a new business or become self-employed but you do not tell HMRC that you need to fill out a tax return.
  • Failure to keep precise accounts – either by accident or in an attempt to pay less than you owe.

Paper vs. online tax returns

There are two ways to file your tax return. You can fill out and send back the paper form which you’re sent earlier in the year or you can register for online services with HMRC and fill your return out online. The deadline for returning your paper form is 31st October of the year that the return covers. If you have missed this deadline, there is no need to panic because you have until the 31st January the following year to fill out an online return.

However, if you do decide to send in a paper form and it reaches HMRC after the 31st October, you will still be fined even though the online deadline is still to come. It pays to be aware of this so that you leave yourself plenty of time to get your form sent back or sign up for online services.

What is a tax penalty?

You will be charged £100 immediately if your tax return is filed after 31st January. You then have 30 days to file your tax return after which point you will be penalised by a further 5% of your overall tax bill. If you fail to hand in your tax return after 90 days, you will then be charged £10 per day for every day that it remains unfiled.

You will also receive a penalty fee if you file your return on time, but then fail to pay your tax before the deadline. The penalty fee for this is usually interest on the amount that you owe, plus a 5% surcharge if your tax remains unpaid after the 28th February.

Incorrect tax return penalties

You may be penalised if your tax return is sent on time but contains mistakes. It is at the discretion of HMRC what this penalty is but usually:

  • There is no fine if HMRC deem that your file has been filled out carefully and otherwise correctly but you have made a small error.
  • If your return has been filled out incorrectly and HMRC believe that you have been careless, you will be fined 30% on the tax that you already owe.
  • If HMRC believes that you have deliberately underestimated your tax, you may be fined between 20% and 70%
  • If you have deliberately underestimated tax and then taken steps to conceal this, you may be fined up to 100% on top of the tax you already owe.

How to appeal

If you want to appeal a penalty decision, you should be aware that you need to do this within 30 days of the penalty notice. You can do this online for £100 fines although penalties over £100 should be done by post using form SA370 which you can download from the gov.uk website.

The only way to appeal successfully is to have a reasonable excuse as to why you have filed your return late or incorrectly. Reasonable excuses, accepted by HMRC, include:

  • A death in the family (either relatives, partner or children)
  • If you have had to go into hospital to stay
  • Problems relating to a disability that you have
  • Serious illness
  • Computer failure
  • Problems with HMRC online service
  • Fire, flood or theft

You should be prepared to provide evidence of any of these.

If HMRC accepts your appeal then your penalty fee will be paid back to you. If your appeal is unsuccessful then there is a second level of appeal where you can ask for another officer to look at your case. It is useful, though, if you are able to provide new evidence or further information if you want a better chance of your appeal being successful.

Alternative Dispute Resolution

Another option, more for businesses but also available for self-employed people, is to apply for Alternative Dispute Resolution (ADR). During Alternative Dispute Resolution a mediator will be assigned to go between yourself and HMRC, to help you to reach an agreement. This process is mostly designed for situations where the facts of the case are in question, where you feel that HMRC have made incorrect assumptions, or if you want to know why they have not accepted your evidence. You can apply for ADR using an online form at gov.uk.

First Tier Tax Tribunal

Your final port of call if HMRC rejects your appeal is to ask for your appeal to be heard by the Finance and Tax Tribunals. You may be able to get this done on paper but you should also be prepared to take your case to a real hearing in this case. If you want to take your case to tribunal, you need to start the process within 30 days of your appeal rejection.

Chances of success?

Figures released by the government in 2016 show that in 52% of cases where a tax return penalty was imposed, the decision was reversed after appeal. As long as you feel that your penalty wasn’t justified and you have evidence to support this, it is worth looking into appealing your penalty.

Want to know more

HMRC frequently make costly mistakes and getting them to acknowledge this and cancel any fines imposed can be a minefield for the unwary. Why not talk to the friendly staff at Accounting Gem who will be able to help and advice.
Please call us on 01473 744 700 or email us on contactus@aag-accountants.co.uk to find out more.