Running a business of any size isn’t easy, and there are times when you might find yourself getting behind with various tasks – especially more complicated ones, such as keeping your accounts up to date, and getting your returns in on time.
You might think that being a bit late isn’t going to cause any problems, and it might be that it doesn’t (for the first few times), but honestly – if you’re not handling your accounts and financial obligations on time, it’s not just bad for your budget, it’s bad for your business too.
So, why is being late so terrible? What are the consequences of not getting your accounts done on time, or providing requested information to your accountants or the tax office after a specified date? We’re going to walk you through just some of the fees, fines, and financial difficulties you might incur, if your accounting isn’t submitted when it should be.
When you hire an accountant to work with you and your business, they will discuss with you what your needs are, what you’re legally obligated to provide to the tax office and will tell you what they need from you – and when.
This isn’t done to make your life difficult, rather it’s a way of scheduling your accounting, helping you manage your time, and ensure that all the necessary paperwork is completed, thoroughly checked, and submitted well before any deadline.
But even if your accountant is a genius (and our team members certainly have the skills to be described as such), there’s only so much they can do if you’re not providing the right documents with enough time to prepare them.
We provide all our clients with clear advice on what they should submit, and when – but if we don’t receive these documents on time, we have to rearrange your client schedule, make extra hours available – and increase our fees to cover the expense of doing so; by 20% if work arrives with 2 months to the deadline, 40% if it arrives with less than 1 month to the deadline, and by £60.00 if a bookkeeping request arrives after the 21st of the following month.
We don’t enjoy charging our clients extra (or rushing to get the work done) and would much rather get it completed on a regular, timely basis – it’s also not great for your business if you’re having to pay additional expenses every month, or every few months, because that’s funds that could have done so much more for your bottom line!
But extra fees and penalties are a fact of accounting life, and it’s something that, regardless of the accountant, can only be avoided if you get your files and data in on time.
The other significant drawback to providing data late, is that if you’re very close to missing the deadline, and there’s no way your accountant can make it – the tax office doesn’t care that you’ve had a 3rd party handling your finances, you still remain liable, and will be held directly responsible for the delay, and any penalties that come with it.
Speaking of penalties, HMRC have very specific deadlines for pretty much everything – and they also have matching penalties waiting for anyone who doesn’t meet them (without an acceptable [by their standards] good reason).
This isn’t a full list of all the penalties that HMRC can leverage against individuals, businesses, or companies, but should give you a good idea of just how expensive it can get if the tax office doesn’t get it’s due, when it’s due.
Penalties by Type:
If you’re late filing your Tax Return, you’ll be charged a £100 penalty (if it’s up to 3 months late), but there will be additional charges if you pay your tax bill late, and any late payments are also subject to interest charges.
If HMRC thinks you’re trying to avoid paying tax, you could end up with a range of charges that are calculated based on what you owe:
Up to 30% if you’re careless, or failed to send in a return
Up to 70% if the error was deliberate
Up to 100% if the error was deliberate, and HMRC believe (or can prove) that you tried to hide it.
Corporation Tax (CT)
If you owe CT and are late to make the payment, HMRC will calculate a penalty based on a percentage of the amount of tax you owe, and whether the error was careless, deliberate, or deliberate and concealed.
Depending on the type of failure, it can range from 30% of potential lost revenue, to 100% of the potential lost revenue.
If you’ve not filed your CT Return on time, then a penalty (calculated on the extra tax due when the mistake is corrected [PLR] and depending on the type of failure) will be applied, with potential fees ranging from 0% to 100% depending on whether the tax office had to contact you (prompted disclosure) and whether it was deliberate.
If you’re late filing the CT600 return (even by a single day), there’s penalties applied:
1 day late – £100 penalty
3 month late – A further £100 penalty
6 months late – HMRC will estimate your CT bill and add a penalty of 10% of the unpaid tax
12 months late – Another 10% of any unpaid tax will be added
Yet another penalty relating to CT, is if you don’t keep sufficient records – if your company profits require you to pay CT in instalments (annual rate of more than £1.5m) then you could be charged with a penalty if you fail to make the instalment payments, or if they’re deliberately too small – these penalties will be charged after the delivery of the CT Return (or HMRC determination) and the normal due date has passed.
Capital Gains Tax
When you’re dealing with Capital Gains on properties, you have 60 days from the date of conveyance to report your disposal and pay tax due – if you miss the deadline, you will be charged with a late filing penalty, depending on how far over you are:
Up to 6 months – £100
More than 6 months – £300 or 5% of the tax due (whichever is greater)
More than 12 months – A further £300 or 5% of the tax due (whichever is greater)
If you’re a non-resident, and the Capital Gains Tax remains unpaid after 31 January (after the end of the tax year of disposal), a 5% late payment of the tax outstanding will be charged.
Pay As You Earn (PAYE) and National Insurance (NI)
There are late payment penalties for not paying your PAYE or NI amounts on time, although the first failure to pay on time doesn’t count as a default.
After that, the fees start to come in for PAYE:
1-3 defaults in a year – 1% penalty applied to the amount that’s late in the relevant tax month
4-6 defaults in a year – 2% penalty applied
7-9 defaults in a year – 3% penalty applied
10 or more defaults in a year – 4% penalty applied
This is on top of the daily interest that will build up on all unpaid amounts from the due date to the date of payment.
The penalties don’t stop there either – you could be charged with additional penalties for late payment if you pay less than what is actually due, and if you’ve still not paid a monthly or quarterly amount in full (after 6 months), then you’ll be charged with 5% of the unpaid amount, and a further 5% if you’ve not paid after 12 months.
NI payments are also subject to fees for payments (such as Class 1A and 1B), with penalty dates 30 days after the payment is due. There’s a 5% penalty if you’ve not paid the full amount in 30 days, and an additional 5% if you’ve not paid in 6 months – with another 5% penalty added if you’ve not paid in 12 months.
Value Added Tax (VAT)
For those that are VAT Registered, there are changes coming to the way in which penalties are applied for late filing of returns, and a new system will be introduced in January 2023 which will apply a points system to businesses – and once a company reaches a particular value of points, they will incur a £200 fixed penalty for that late return, and any late returns afterwards for a window of two-years, before the points reset.
However, this system doesn’t replace the penalties and interest payments on late VAT payments, and if the payment isn’t made within 15 days of the due date, extra costs will accumulate – 2% of the outstanding tax (if not paid within 16 – 30 days of the due date), and a further 2% of the outstanding tax at 30 days (4% overall).
But until these changes come in, the existing system of penalties remains. If you’re late with a VAT return of payment, you’ll begin a 12 month ‘surcharge period’ (although you don’t pay a surcharge on the first default), but if you default within that 12 month period an additional 12 months is added, and you may have to pay extra on top of the owed VAT.
This could mean surcharge penalties of:
Defaults within 12 months Surcharge (if annual turnover is less than £150,000) Surcharge (if annual turnover is £150,000 or more)
2nd No surcharge 2% (no charge if this is less than £400)
3rd 2% (no charge if less than £400) 5% (no charge if less than £400)
4th 5% (no charge if less than £400) 10% or £30 (whichever is greater)
5th 10% or £30 (whichever is greater 15% or £30 (whichever is greater)
6th or more 15% or £30 (whichever is greater) 15% or £30 (whichever is greater)
HMRC can also apply penalties of up to 100% of any tax under-stated or over-claimed (on inaccurate returns), 30% of an assessment (if HMRC believes it’s too low, and you don’t contest within 30 days), or £400 for submitting a paper return (if you don’t meet the criteria to provide one)
And it’s not just HMRC that’s ready to penalise you – Companies House also have deterrents for late contact, and this affects private companies, public companies, and limited liability partnerships (LLPs).
The late filing penalties apply to accounts, and depend on how late they get to Companies House:
If they’re not more than a month late, it’s £150 for private companies or LLPs, or £750 for a public company.
If they’re more than a month, but less than 3 months late – it’s £375 for private companies and LLPs, or £1,500 for public companies.
More than 3 months, but less than 6 months, and you’re looking at £750 for private companies / LLPs, and £3,000 for public companies.
Anything over 6 months late, and it’s £1,500 for private companies / LLCs, and £7,500 for public companies.
If the accounts are filed late in two successive financial years, these penalty figures are doubled!
Then there’s the consequences of not filing – which is actually a criminal offence, and could see Directors or LLP designated members being personally fined in criminal courts, enforcement proceedings, or ending up with the company being stricken off.
Basically, regardless of what type of business you run, or what size it is – the later you pay, or the more often you fail to pay on time, the more trouble you can get yourself into.
Which leads us to the third point – tax audits and HMRC involvement. Sometimes these are random, HMRC conducts a certain number each year, just to keep track of everything. But, if you’re habitually late with your returns, are having penalties or fines leveraged against you (or your business) on a regular basis or are appearing to struggle with your business responsibilities – there’s a strong chance that you’re going to be singled out for an assessment, review, and potential further action.
Tax Investigations and Audits can be extremely time consuming, intrusive, expensive to prepare for, and can result in catastrophic consequences for your business if HMRC find against you.
As we mentioned, sometimes these audits are random, and can’t be avoided, and that’s just how it goes – but if you’re managing your financial obligations poorly, you’re much more likely to be subjected to one.
We’ve put together our Tax Investigation Service to help take the stress and strain out of investigations, and help out clients handle exactly what’s been requested of them so they’re not having to spend precious time and money sorting out documents, submitting them, and potentially missing required data.
But this service, although a lifeline for many, still requires client co-operation, and it’s far better to manage your finances from the get-go, than to find yourself in a situation where it’s all getting on top of you.
If you’d like to find out more about our Tax Investigation service or would like a consultation about your finances – and what your business needs, then we’d love to hear from you. Get in touch today, and let’s see what we can do, together.
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