With HMRC, penalties may be charged for late filing or payment of any type of tax. You can also be charged for ‘failure to notify’ HMRC that you are liable to pay tax, usually when starting self-employment or receiving taxable income. The penalty system was overhauled in 2009 and penalties can be charged for various misdemeanours, like not informing HMRC that an assessment isn’t high enough or failing to complete a tax return accurately, thus leading to insufficient tax being paid. The penalties vary in severity, according to whether a mistake was deliberate or due to a lack of understanding. Knowing how penalties work may help you to avoid them in the first place.
Who is responsible for penalties?
Although an agent may be dealing with your tax affairs, you are still responsible for your own tax. If anything is incorrect or filed late, you will be charged a penalty.
What are the penalties charged for?
Penalties may be charged against a misdemeanour of any type of tax. One penalty with which most people in self-assessment are familiar is self-assessment penalty. This is charged for the late filing of a tax return and can certainly add up very quickly. If you have missed the filing deadline of 31st January, you are charged a £100 fixed penalty. Further daily penalties are charged at £10 per day until the tax return is three months late. The penalties, fixed and daily, continue to be added to the charges until the tax return has been filed.
Failure to comply with Real Time Information as an employer also incurs penalties. Late submissions and payment of tax owed will incur charges. The penalty will be charged according to the number of employees a company has. A further penalty will be charged if an employer return remains outstanding after three months.
Penalties for errors
If an error is made on a tax return or other documentation that could lead to insufficient tax being charged, a penalty may be incurred. However, if it is deemed that you demonstrate ‘reasonable care’, you may not receive a penalty.
What is a ‘failure to notify’ penalty
If you receive a type of income liable to tax, you must inform HMRC that your liability has changed. For instance, you may start a business or start to receive untaxed interest, which could affect your tax position. If you don’t inform HMRC of any change affecting your tax liability, you could receive a penalty for ‘failure to notify’.
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