Stand-out Q – tax return…

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TUE, 06 FEB 2018

Our Technical Hub provides access to a wide range of pension tax and trust technical resources. Every now and then we post tweets covering stand out questions from our technical content and our answers in case others might also find them helpful. As Twitter’s character restrictions only allow for the bare bones of the Q&A we link to the details here, too.

Question

My client didn’t submit their 2017/2018 tax return by 31 January 2019. What will happen?

Answer

At this time of the year, as part of their campaign to reinforce the message that tax returns should be submitted on time, HMRC likes to publish some of the more weird and wonderful, if not outright bizarre, excuses that they have received for the late submission of tax returns. Penalties are due where tax returns are filed late, unless there is an acceptable reasonable excuse for failing to file the tax return on time.

The normal filing date for a tax return is 31 January in the year following the end of the tax year (31 October where paper returns are filed). However, the deadline is extended to three months after the date that HMRC issues a notice to submit a tax return where this would take the taxpayer over the normal deadline. This should happen only rarely, and it is therefore most likely that the taxpayer’s failure to submit his tax return by 31 January means that the return is late and the “reasonable excuse” provisions will come into play.

Occasionally, case law will discuss particular circumstances which HMRC has not considered to fall within the definition of “reasonable excuse”, but which the taxpayer is appealing. The facts tend to be unusual, and most excuses given will not be this contentious. HMRC provides its view on the most common excuses submitted in its manual.

Once the reasonable excuse position has been exhausted, consideration then turns to financial penalties already incurred and which may still be accruing.

For tax returns up to and including 2009/10, it was possible to reduce the £100 late filing penalty to nil if no tax was due. This is no longer an option, and the £100 penalty applies automatically. The daily penalty increases for late filing after key dates.

The table below summarises the penalties imposed for late filing and shows the link to the relevant pages of HMRC’s manual.

table updated

Interest will be due on penalties not paid within 30 days.

As well as the late filing penalties, there can be other consequences of persistently failing to file a tax return. HMRC is entitled to issue a determination in place of the tax return. This is effectively an estimate HMRC applies to the client’s tax affairs to assess the outstanding income liability, including the following year’s payments on account, and acts as self-assessment until the late return is filed. This is designed to encourage the taxpayer to report their tax affairs as soon as possible.

The only way to amend a determination is to file the tax return in question. Where not all figures are known, provisional returns can be filed and amended at a later date to avoid incurring further penalties. In any event, it is recommended that returns are filed as soon as possible to avoid what can be very expensive penalties.

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