This article summarises the main tax late filing and payment penalties. In addition, you should be aware there are penalties for providing incorrect information.
As a small business owner you will have to deal with a number of different departments within HMRC. Each department has different forms to complete with different deadlines and different penalties should either your submission or payment be late. The following is a quick guide as to what you need to be aware of when dealing with HMRC and which deadlines you should put in your diary.
Under HMRC’s Real Time Information (RTI) system, late filing penalties apply on a monthly basis. However, no penalty will apply for the first month in each tax year that a return is filled late.
New employers will not be penalised if their first Full Payment Submission (FPS) is received within 30 days of making their first payment to an employee.
Filing penalty notices are issued quarterly in July, October, January and April, showing the amount of the filing penalty for each tax month identified in that quarter.
Penalties for late filing may be imposed as follows:
| Number of employees | Monthly penalty (£) |
|---|---|
| 1 to 9 | 100 |
| 10 to 49 | 200 |
| 50 to 249 | 300 |
| 250 or more | 400 |
Interest is payable on every late payment throughout the year. For PAYE purposes periods run from the 6th of the month to the 5th of the following month. If paying by cheque, payment should be made by the 19th whereas if paying electronically the payment has until the 22nd to clear in HMRC’s bank account. HMRC do not accept Faster Payments so make sure to allow for at least 3 working days for the funds to clear.
HMRC charge daily interest on late payments of PAYE using HMRC late payment interest rates which can be found on the Gov.uk website at https://www.gov.uk/government/publications/rates-and-allowances-hmrc-interest-rates-for-late-and-early-payments/rates-and-allowances-hmrc-interest-rates. Interest will be backdated at the end of the tax year once you have filed your Employer Annual Return.
Penalty charges may be issued for missed payments of PAYE…
| No. defaults in a tax year | Penalty percentage | Amount to which penalty percentages apply |
|---|---|---|
| 1-3 | 1% | |
| 4-6 | 2% | |
| 7-9 | 3% | The total amount that is late in the relevant tax month (ignoring the first late payment in the tax year) |
| 10 or more | 4% |
(1)The first failure to pay on time does not count as a default.
| Additional penalties | Amount |
|---|---|
| 6 months late | 5% |
| 12 months late | Further 5% |
If you operate in the construction industry you must file a return to report the deductions you have made from your subcontractors on a monthly basis. The period runs from the 6th of the month to the 5th of the following month and you have 14 days to make the return. For example, for the period from the 6th of May to the 5th of June you must file the return by the 19th of June.
The payment of the CIS deductions are made at the same time as your PAYE payments and have the same deadlines as described above.
You must make a return every month even when no deduction has been made: if no deductions have been made then you must file a nil return. The penalties for failing to file the monthly return are the same as the PAYE penalties described above.
CIS is paid at the same time as PAYE and follows the same payment pattern. The same penalty and interest regime applies as outlined above.
P11D forms are required if you provide benefits to employees. Some examples include a company car, fuel, private medical insurance, beneficial loans and accommodation. The P11D also give a breakdown of the expenses provided to each employee. The P11D(b) declares the Class 1A National Insurance payable by the employer.
Forms P11D should be filed by the 6th of July following the tax year. An initial penalty of up to £300 per return may be charged for late filing, with a maximum penalty of £60 per return per day being charged where the failure continues.
For the P11D(b) summary form, where the return is up to 12 months late, HMRC may charge a penalty of up to £100 per month (or part month) for each batch (or part batch) of 50 earners for whom Class 1A is payable. Returns over 12 months late may be subject to a penalty of an amount not exceeding the amount of unpaid Class 1A NICs outstanding at 19 July.
Class 1A NICs need to be paid to HMRC by the 22nd of July if paying electronically, or by the 19th of July if paying by cheque.
The same penalties and interest rates apply to Class 1A National Insurance as to that under PAYE.
VAT returns are made quarterly in the majority of cases, but there are monthly and annual schemes.
You must file your VAT return online by the end of the month plus 7 calendar days of the period end. For example for a quarter ended in May, you must file your VAT return by the 7th of July.
If paying by cheque you must pay by the VAT return due date but if paying electronically you can also pay any VAT due by the 7th. Again, HMRC do not accept Faster Payments so you must ensure funds clear by then. Furthermore, if paying by direct debit HMRC will collect payment a further 3 working days after the 7th.
There are different rules depending on your turnover. The table below summarises the rules for surcharges where deadlines are not met:
| Default | Turnover below £150,000 | Turnover above £150,000 |
|---|---|---|
| First | No surcharge | No surcharge |
| Second | No surcharge | 2% of unpaid VAT(unless below £400) |
| Third | 2% of unpaid VAT(unless below £400) | 5% of unpaid VAT (unless below £400) |
| Forth | 5% of unpaid VAT (unless below £400) | 10% of unpaid VAT |
| Fifth | 10% of unpaid VAT | 15% of unpaid VAT |
| Sixth and subsequent | 15% of unpaid VAT | 15% of unpaid VAT |
If you are late with a payment or filing a return, HMRC will initiate a 12 month probation period known as a ‘Surcharge Period’ during which any successive failures will incur the next level of fine as well as resetting the Surcharge Period for another 12 months. The Surcharge Period will come to an end when 12 months of consecutive returns are filed and paid on time.
Surcharges apply if you miss a return or a payment, so even if you pay on time but don’t file the return the surcharges still apply in the same way and vice versa.
Your Company Tax Return must be filed within 12 months of the end of your accounting period.
Penalties for late filing are as follows…
Payment of Corporation Tax is due 9 months and a day after the period end, this means that you may end up paying the Corporation Tax before you file your Company Tax Return. Interest is payable on any tax paid late as per the interest rates shown at https://www.gov.uk/government/publications/rates-and-allowances-hmrc-interest-rates-for-late-and-early-payments/rates-and-allowances-hmrc-interest-rates.
The penalties for late Self Assessment returns are as follows:
The penalties are applicable even if no tax is due.
Interest is applied to any late payment of tax at the rates shown at https://www.gov.uk/government/publications/rates-and-allowances-hmrc-interest-rates-for-late-and-early-payments/rates-and-allowances-hmrc-interest-rates. If you don’t pay the tax you owe for the previous tax year on time by 31st January the following penalties apply…
Penalties do not apply to payments on account that are late but interest does.
In conclusion, operating a small business means that you have a number of deadlines to adhere to. You must ensure that you file all your HMRC forms on time to avoid penalties and make payments on time to avoid interest and surcharges.
We can guide you through the maze of deadlines and help by sending you reminders in respect of the taxes we act on your behalf for.
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