HMRC has a complex system of surcharges, penalties and interest that they apply to taxes that are paid late.
The rules and amounts of surcharge will depend on a number of factors, the most important of which is the tax that it relates to. It may also apply penalties where you do not tell them about a liability of tax at the correct time.
It’s important to note that your company is liable to penalties and surcharges, even if you have an agent (for example an accountant or tax adviser) acting on your behalf. It’s very important that you make sure that your agent is submitting things on time and correctly.
We have set out a brief outline for the penalties, interest and other surcharges that can be applied in respect of PAYE, VAT and Corporation Tax but for more detail, you should refer to the HMRC website for full details.
Employers operating PAYE need to operate within HMRC’s rules. For PAYE, a tax month runs from the 6th of one month to the 5th of the next. Each tax month, the company is responsible for recording the amounts paid, any deductions made (i.e. employee’s tax and National Insurance Contributions) and calculating the amount of employer’s National Insurance Contribution that they will need to pay. This information should be reported using a Full Payment Submission (FPS). HMRC will send you a late filing notice and can charge a penalty if the FPS is filed late.
The tax month after the FPS is submitted, you will need to pay HMRC amounts owed to them by the 22nd of the month.
If you do not pay these amounts by the 22nd of the relevant month, they will charge daily interest at a rate of 2.75% on the amounts outstanding until the full outstanding amount is paid off. They may also charge you a penalty if you don’t pay the full amount on time.
The amount of penalty varies depending on how many employees the company has, with the amounts ranging from £100 to £400. They normally do not charge a penalty for the first late or non-payment within the tax year. For payments that are over 3 months late, you will be charged an additional 5% of outstanding tax and NICs.
You are normally required to submit VAT returns every 3 months. The return will detail the amount you owe and the amount of VAT you can reclaim. HMRC charges surcharges and penalties for returns that are not filed on time, where full payment of VAT is not made or where the returns do not reflect the right amount of VAT due.
In these circumstances, HMRC will register a default, which triggers a 12-month surcharge period. If you default within the surcharge period, HMRC will extend the period for a further 12 months and you may have to pay and extra surcharge on top of the VAT you owe.
The surcharge is calculated as a percentage of the VAT outstanding for your relevant accounting period. The rate increases every time you default within the surcharge period. The precise percentage of the surcharge varies depending on the turnover of the company and the outstanding amount.
In addition to this, HMRC can charge penalties of up to 100% of tax due to them, where a return is carelessly or deliberately inaccurate, up to 30% for a return that’s too low and you don’t inform them within 30 days or £400 if you submit paper VAT returns (unless you’ve been specifically told to do this.
Interest is applied to any outstanding amounts at a rate of 2.75% for a period of up to two years.
Penalties for Corporation Tax are calculated by applying a percentage to a number of outstanding tax amounts. The percentage varies depending on the reason for the error or non-payment of tax – with the lower percentage of 30% being applied to non-deliberate mistakes and up to 100% penalty where the error was deliberate and concealed. Penalties of up to 70% will be charged where the error is deliberate but not concealed.
HMRC will not apply a penalty where you took reasonable care and made a mistake and may reduce the amount of the penalty if you alert them to the underpayment of tax before they take any action.
Separate to penalties for underpaid Corporation Tax, HMRC will also charge penalties where you have been sent a Notice to deliver a Company Tax Return and you do not file a return by that date, or for filing inaccurate Company Tax Returns. Again, the amount of the penalty varies dependent on whether the mistake was deliberate or not, whether you tried to conceal it and whether you alerted HMRC to the error unprompted. The penalties range from 0% to 100% of the tax owed on a sliding scale of the seriousness of the error or action.
If you’ve received a notice from HMRC stating that they are charging you a penalty or surcharge, we may be able to help. Call us on 08000 746 757 for a no-obligation free of charge discussion or use the live chat feature below.