One of the first tasks to complete at the start of every year, if you have left it until the last minute, is to fill in your tax return for the previous year, and submit it along with the amount of tax you are expected to pay.
Typically, the deadline to submit a return is the 31st January for people submitting their tax returns, and whilst the advice is always to submit as early as possible to avoid the late rush and ensure you get access to a tax return accountant, it is not always possible.
Unfortunately, because of this rush, sometimes it can lead to mistakes that can prove to be costly, as Her Majesty’s Revenue and Customs (HMRC) sometimes can charge people for making a mistake, filing or paying late without a reasonable excuse, or failing to keep financial records as required and often requested.
Here are the main reasons why HMRC sends penalty notices, how much they tend to be and the best way to handle them.
What Are The Reasons For Tax Penalties?
Whilst there are a lot of reasons for HMRC to issue a penalty to a person, typically there are a few reasons why someone may end up receiving a penalty notice as a result of their taxes, of which the most common are:
- Filing a tax return late without a reasonable excuse.
- Failing to make a payment by an agreed deadline.
- Errors, omissions or inaccuracies on your tax return.
- Failing to declare income you owe tax on.
The charge you are expected to pay may differ based on a wide range of circumstances, particularly as the system changes to a penalty points system as of 2022.
It can depend on how long it took to rectify, the scale of the error and the level of intent in submitting a false return, for which HMRC uses one of three categories:
- Mistakes caused by a lack of ‘reasonable care’,
- Deliberate mistakes,
- Deliberate mistakes that the submitter attempted to conceal before being caught.
They can also be reduced on appeal or if steps are made to put them right.
How Should You Handle Tax Penalties?
If you do not have a justifiable reason for a delay, late payment or deliberate error, paying as soon as possible will reduce the possible charge. However, in many cases, there are grounds for appeal, and an appeal should be filed within 30 days of the penalty notice date.
Because of the difficult business environment of the last two years, many people can apply for more time to pay or to waive a late filing fee, although you may need to speak to HMRC about this. As well as this, other reasonable excuses can be used to justify a late filing:
- The death of a close relative,
- An unexpected hospital stay,
- A life-threatening illness,
- Software used to complete the tax returns failed before the deadline,
- HMRC’s systems broke down close to the deadline,
- Theft, flood or fire damage affected your ability to file your taxes,
- A disability-related disability.
Mistakes can often be amended after they have been filed within a certain timeframe, so long as they were not attempting to deliberately conceal tax liability.