How To Avoid 3 Tax Traps For Late Tax Returns And Tax Payments

HM Revenue & Customs (“HMRC”) have recently been publicizing the need to file Self-Assessment tax returns for the year ended 5 April 2013 and to make any tax payment due on 31 January 2014.  For those who have not yet complied with their obligations, there are a number of nasty traps lurking in the undergrowth and care must be taken to avoid them.

To start with, the deadline for filing the paper return was 31 October 2013 and 31 January 2014 if the return was filed online.  Experience tells us that many people will have missed the deadline that applies to their mode of filing and they therefore face a penalty.  This is normally a flat £100, but there are further, punitive, penalties for those who delay filing still further.  Once the return is more than three months late, there will be an additional penalty of £10 for every day that the return remains outstanding and this brings us to our first tax trap.

  1. Anyone intending to file a paper return today is already in this £10 per day penalty regime, as such returns are now more than three months overdue.  They can, of course, still file their return online at any time up to 30 April 2014 to avoid the extra charge, but if they have not taken the necessary steps to enable them to do so then they had better start taking them soon.  The main thing to say is do not file a paper return under any circumstances and, if necessary, get professional help.
  2. The second sting in the tail awaiting tardy taxpayers is that any tax for the year ended 5 April 2013 that is not paid by the end of February 2014 will be subject to a late payment penalty of 5% of the amount underpaid.  Interest will also be running, but this is at a more acceptable cost of 3% per annum, compared to 5% for a mere one month’s additional credit.  It is self-evident that this should be avoided where possible and there are further 5% penalties that will be charged if the underpayments continue.
  3. Finally, beware the penalty position for making mistakes in your return.  If you have rushed to complete your tax return and you subsequently find an error, tell HMRC about it as quickly as possible.  Careless errors carry a penalty of 30% of the potential lost revenue, i.e. the tax at stake due to the error, but if you tell HMRC about the mistake the penalty can be mitigated down to zero.  If HMRC finds out about it first and ask you how it arose, the minimum penalty they are allowed to charge is 15% and remember, the penalty is based on the tax at stake and not on whether there is an underpayment or not.

If in doubt, do get professional help.

Carl Barwick – Tax Manager

Westbury Accountants and Business Advisors is an accountancy practice based in London. Westbury have been providing Accounting and Tax solutions to small and medium sized businesses since 1936. Talk to the team at Westbury on 0207 253 7272; or visit