15 Mar
Your guide to HMRC penalties and how to avoid them

How to avoid HMRC penaltiesRunning your own business is complicated enough without having to worry about being penalised for not crossing the t’s and dotting the i’s. That’s why we’ve put together this handy list of things that Her Majesty’s Revenue & Customs (HMRC) might issue penalties for, and most importantly - how to avoid them!

Filing your tax return late

Missing deadlines is by far the most common way to find yourself getting more than a slapped wrist from HMRC. Filing your tax return late is likely to incur a penalty, so it pays (pun intended) to be on top of this.

The deadline for submitting your self assessment tax return following the tax year is 31 January. But be warned - HMRC may not send you a reminder, so put it in your calendar to avoid unwanted fines!

Penalties begin at £100 for late filing of your self assessment tax return. After three months of your return being overdue, HMRC can start levying further penalties, beginning at £10 a day. Yikes! Bear in mind that you still have to file a return even if you don’t actually owe any tax, so this can’t be used as an excuse.

As obvious as it may sound, the easiest way to avoid this is by staying on top of your affairs, and not procrastinating. We understand that not everyone’s hyper-organised, which is why it’s not a terrible idea to have an accountancy company - like Mazuma - to do this for you. Contact us today to see if we can help.

Paying your tax late

Late payment of your taxes will also find you veering into penalty territory. It can be a particularly painful sting, not least because one of the likely reasons for late payment is that you can’t afford to pay it - often due to cashflow or funds being tied up in other places!

Again, personal tax needs to be paid by the 31 January deadline. If you’re 30 days late in paying, you’ll be stung with 5% of the total tax due. Further 5% penalties will be applied after six and 12 months - and that’s on top of previous penalties - *gulp*. You’ll also have the privilege of paying interest on the overdue tax. How kind of HMRC…

To avoid this kind of situation, having a good accountancy company on your side can be a real asset.

Other penalties

If you’ve set up a business but not told HMRC, you might get hit with a penalty for failing to register a new business. This one’s easily avoided, and you can find out how to register a new business on the GOV.UK website.

Likewise if you fail to register for VAT when you reach the threshold, you’re likely to incur a penalty. Find out all about registering your business for VAT here.

Not keeping proper records could also land you in hot water, particularly if you’re instructed by HMRC to improve and fail to do so. Inaccuracies in your returns could also land you in trouble - even if the mistakes are completely honest. As mentioned, not everybody is naturally well organised, and there’s no shame in seeking advice from HMRC or an accountancy firm on how to keep records or fill out returns.

It should go without saying, but tax evasion and fraud are the last stop in terms of penalties. At this point, it goes beyond mere penalties and into possible criminal charges. But as you’re reading this, we trust that you want to stay on the right side of the law!

Extenuating circumstances

Life comes at you fast, so there might be perfectly good reasons as to why you may not have been able to, for example, meet a tax deadline. HMRC may overturn a penalty if you have reasonable grounds for appeal.

Now you might be wondering what exactly HMRC consider to be a ‘reasonable’ circumstance. Well, we’ve outlined the list as follows:

  • Death of a close relative or partner shortly before the return or payment due date
  • Unexpected hospital stay, serious or life-threatening illness
  • Software failure when filling out returns
  • Technical problems on HMRC’s side
  • Fire, flood or theft affecting your ability to file a return or pay
  • Unable to meet obligations due to disability

Want to know the easiest way to keep your nose clean?

If you want to stay on top of your tax affairs and avoid penalties (and who wouldn’t?), one surefire way is to use a reputable accountancy service. Here at Mazuma, we’d be more than happy to help you out, including with your self assessment tax return. Contact us today to find out more information about our services.

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