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Penalties for late tax returns

In the past few years, the issue of penalties for late filing of personal tax returns has become of greater importance. Historically, the general rule was that a penalty could not exceed the amount of any tax due. In situations where a taxpayer had been issued with a tax return notice but did not have a tax liability (so did not bother to file a tax return) there was no consequence of a failure to file the return on time because the penalty was reduced to zero.

Sadly, this is no longer the case and penalties are payable even if there is no tax due. We have seen a number of instances where unwary taxpayers are faced with penalties which in some cases exceed £1,000, even where there is no tax due!

In the first instance, we therefore recommend that if you have previously needed to file a tax return, you should not simply assume that a change in circumstances means you do not have to file a return in the future. Common changes which might lead you to think this are: ceasing in self-employment, retiring from a company directorship or no longer owning a buy to let property.

It is a very simple matter to check the position. Simply ring HMRC quoting your unique tax reference (UTR) and ask, or login to the HMRC Gateway and check your account. Obviously, if you do not feel comfortable with this course of action, we can check these details for you.

If, like the innocent taxpayers referred to above, you are being chased for payment of penalties by HMRC, all is not lost!

It is possible to appeal against the penalties and, if there is a reasonable excuse for the failure to file a tax return on time, it may be possible to get the penalties reduced to zero. One of the difficulties with this course of action is that the appeal needs to be made within a certain period of time. If the appeal is out of time, HMRC may well choose to dismiss the appeal itself. However, a recent tax case indicated that tax tribunals will interpret the reasonable excuse rule in a wider fashion than HMRC traditionally choose to do, so even if HMRC dismiss an appeal, it may be worth appealing to Tribunal.

In conclusion, if you are charged penalties by HMRC for late filing of a tax return, you should not accept the HMRC position without further consideration. If the penalty is small, the easiest course of action is probably to pay the penalty and file the outstanding return. For higher penalties, you may wish to appeal, but the position can be complex and always needs to be considered on a case by case basis. We therefore recommend that you should always consult with a professional adviser before taking further action