Each tax or duty has specific rules on penalties for late payment or filing. A penalty may also be due if you do not tell HMRC about a liability to tax at the right time.
Penalties for late filing or late payment
Penalties for late filing of returns and paperwork or late payment can be applied to any of these types of taxes:
- Self Assessment Tax Return deadlines and penalties;
- PAYE/National Insurance payments and deadlines;
- PAYE late payment penalties;
- Missed VAT deadlines- penalties and surcharges;
- Late returns and late return penalties under CIS; and
- Corporation Tax penalties.
Civil Evasion Penalties
These penalties result when HM Revenue & Customs investigate:
- a potential smuggling offence by a traveller or a trader; or
- fraudulent declarations and dishonest claims for repayment of duty or relief from duty under their civil evasion penalty procedure.
The investigation is conducted with a view to the imposition of a civil evasion penalty for dishonest conduct, if HMRC suspicions are confirmed. It is not being conducted with a view to your prosecution for evasion of customs taxes or duties.
These provisions apply to individual travellers, commercial importers and exporters or their agent or representative.
Penalties for errors on returns, payments, paperwork and inaccuracy
These penalties can be charged if there are errors on returns or other documents which:
- understate the tax; or
- misrepresent the tax liability.
Penalties may also apply if you do not tell HMRC if an assessment is too low. This type of penalty is known as an ‘inaccuracy penalty’.
From 1 April 2010, this inaccuracy penalty applies to the following taxes and duties:
- Betting and Gaming duties;
- Capital Gains Tax;
- the Construction Industry Scheme;
- Corporation Tax;
- Environmental taxes;
- Excise Duties;
- Income Tax;
- Inheritance Tax;
- Insurance Premium Tax;
- National Insurance contributions;
- Petroleum Revenue Tax;
- Stamp Duties; and
If documents are sent to HMRC that contain a mistake, HMRC will charge a penalty if the error is:
- because of a lack of ‘reasonable care’;
- deliberate- such as intentionally sending incorrect information; and
- deliberate and concealed- for example, intentionally sending incorrect information and taking steps to hide the error.
The level of the penalty is linked to the reason why the error occurred. The more serious the reason, the higher the maximum penalty can be.
How the inaccuracy penalty is calculated
If a penalty arises because of a lack of reasonable care, the level of the penalty will depend on the amount of the extra tax due and the reasons for the error. For example:
- If a penalty arises because of a lack of reasonable care, the level of the penalty will depend on the amount of the extra tax due and the reasons for the error. If the error is careless, the penalty will be between 0 and 30% of the extra tax due.
- If the error is deliberate, the penalty will be between 20 and 70% of the extra tax due.
- If the error is deliberate and concealed, the penalty will be between 30 and 70% of the extra tax due.
The penalty can be reduced if you tell HMRC about the error. HMRC may make further reductions depending on the quality of the disclosure. Penalties can be reduced by:
- telling HMRC about the errors;
- helping HMRC work out what extra tax is due; and/or
- giving HMRC access to check the figures.
Failure to notify penalty
If you don’t tell HMRC when changes happen that affect their liability to tax, VAT, or other duties, you may face a penalty. This is known as a ‘failure to notify’ penalty.
A penalty may occur, for example if your client doesn’t tell HMRC, at the right time, that:
- they are liable to tax because their new business has made a profit;
- their company is liable for Corporation Tax;
- their business turnover has reached the VAT registration threshold;
- they sell an asset and make a capital gain on which tax should be paid;
- they start a type of business that must register with HMRC- for example a business that will charge Excise Duty; or
- their circumstances change in a way that affects their tax position.
This penalty is calculated in a similar way to the inaccuracy penalty- see the section above for more information. HMRC can also reduce it if your client tells them about the failure.
From 6 April 2011 HMRC can charge an increased penalty where an inaccuracy penalty, or a failure to notify penalty, arises and the income or asset that gives rise to the penalty is held outside of the UK. The penalty for failing to submit a return for 12 months can also be increased where offshore assets or income are involved. The level of the penalty depends on how readily the foreign jurisdiction shares information with the UK and only applies to Income Tax and Capital Gains Tax.
VAT and Excise wrongdoing penalty
From 1 April 2010 HMRC will charge a penalty known as a wrongdoing penalty if you:
- issue an invoice that includes VAT which they are not entitled to charge;
- handle goods on which Excise Duty has not been paid or deferred;
- use a product in a way that means more Excise Duty should have been paid; and/or
- supply a product at a lower rate of Excise Duty knowing that it will be used in a way that means a higher rate of Excise Duty should be paid.
This penalty applies to anyone registered for VAT or Excise, anyone who should be registered to pay VAT or Excise Duty and to other members of the general public.
This penalty is calculated in a similar way to the inaccuracy penalty. HMRC can also reduce it if you tell them about the wrongdoing.
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