HMRC Late payment regime

The HRMC penalty regime for late payments of National Insurance (NI) and PAYE is still regarded as ‘unfair’ to SMEs. This regime was introduced in April 2011 with the aim of punishing the late filing of tax returns with new charges – taxpayers that file in for tax returns after the deadline.

This regime was initiated as a result of government pressure on the HRMC to achieve filing targets for tax returns. HMRC were finding it difficult to effectively sanction those who were avoiding their tax payments.

Stuart Aikman, a consultant at Smith & Williamson, revealed that taxpayers are likely to ‘fall into the trap’ of avoiding a late tax return filing penalty by paying sufficient tax in January – unaware of the new HMRC late payment regime.

In the past, the late payment fine was ‘capped’ according to the amount of outstanding tax at the relevant dates – but that is no longer the case. HMRC penalties are based on the number of times businesses incur late payments and the charge could be 1-4% of the amount of tax outstanding.

Overdue tax returns penalties

Accountants are warning taxpayers to ensure that they file their self-assessment tax returns before the scheduled deadlines as they could accumulate total penalties of up to £1600 – even if you have paid all your tax due. The following penalties could be charged:

• Day one – an elementary fee of £100
• 3 months late – a daily fee of £10 per day, for the next 90 days, up to a maximum of £900.
• 6 months late – whichever is higher: 5% of any tax liability outstanding or an additional £300
• 12 months late – whichever is higher:  5% of any tax pending or an extra £300

No penalty will be capped so the initial payment of £100 will always be charged even if a tax return is a day late. In a partnership, each partner of the business will be charged £100 – including limited companies, even though the tax return shows no liability for the period concerned. However, businesses with a reasonable excuse could always appeal against the penalty.

Late tax payment penalties

HMRC revealed that the new penalties for late payments are expected to apply to late balancing payments as of January 2012 – the penalty can’t be more than the tax outstanding at 31 January. As of January 2012, HMRC charges the following penalties for late tax payments:

• An initial 5% charge on outstanding tax on January 31^st, if still unpaid 3 months later
• An extra 5% charge on unpaid tax on January 31^st, if still unpaid 6 months later
• An additional 5% charge on unpaid tax on January 31^st, if still unpaid 12 months later.

Remember that interest will still be charged from the date the tax was due, until the payment is received. The government urges taxpayers to pay their full taxes as the penalties could gradually increase.

This new regime will come as a ‘blow’ to the numerous taxpayers that have been able to avoid late filing penalties and overdue payments. Beware of HMRC. You do not want your business to be in a cash flow crisis as a result of HMRC penalties.

About the Author

Mark Jefferson is a seasoned commercial finance professional with over 25 years’ experience in financial services, much of that spent providing funding to SMEs. Mark has worked with many other firms in a similar situation to yours. Call Mark on 01451 832533 and you can also follow him on Google+

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