When you’re running a small business, it is vital to stay on top of your tax obligations. But sometimes life gets in the way. If you’ve submitted your tax return to HMRC late, you will find yourself facing the headache of Self Assessment late filing penalties.
If you’ve missed the filing deadline and want to know what to do next, this guide is here to help.
We’ll look at what penalties you may face, how to mitigate them, and how to appeal if you feel the HMRC penalty has been unfairly applied.
Self Assessment Tax Returns
There are very few business owners who feel excited by filing their self assessment. For many, the process is daunting, with threats of late penalty fines and tax inspections.
However, as long as you stay on top of your accounts monthly, the self assessment itself isn’t too bad. There are online software programmes you can use to help with your expenses and track your income. You can also hire an accountant to file your return for you.
The self employed must fill in an annual tax return. This is a legal requirement set out by HMRC regardless of how much you earn. Those who are under the threshold for paying tax still must submit their assessment.
Self Assessment Filing Dates
There are two filing dates for self assessment tax returns. The date you must submit depends on whether you file a paper return or use the government gateway online version.
Which you choose to use is your choice to make. Some people might prefer good old pen and paper if they aren’t keen on technology. Others prefer the simplicity of having it all on the computer to access at any time.
The HMRC deadlines for filing self assessment are as follows:–
- For Paper Versions: Midnight on the 31st of October every year.
- For Online Versions: Midnight on the 31st of January every year.
Payment is due no later than the 31st of January of that year.
Let us use the 2022/2023 tax year as our example. The dates of this tax year just finished are 6th April 2022 and finished on 5th April 2023. You can choose to make your books up to a slightly different timescale. For example, many businesses prefer to use the 31st of March as the end date instead.
Anyone filing a paper self assessment for the 2022/2023 tax year must have done so by the 31st of October 2023 at midnight. Those using the online method should do so by the 31st of January 2024 at midnight. This latter date is also the latest date that any tax owing should be paid.
Self Assessment Penalties
Failing to submit the self assessment or pay monies owed to HMRC by the deadline means you will face a penalty. Even if you pay but haven’t submitted the return, you will still be penalised.
This is because once the money is received by HMRC, they have no data to work from to understand how this total came to be. This money does not get used, it sits in your HMRC account as a credit. In HMRC’s eyes, you have not paid or submitted your return.
You will be fined if you fail to submit either the money or the return on time. This is regardless of how much tax you owe and whether you are eligible for a refund. It is also important to note that there will be interest charged on any late payments.
Late Filing Penalties
The penalties for filing late are as follows:
- 1 day late: £100 is an automatic amount charged as soon as you are a day late submitting or paying your return, or both. Even those who have no tax to pay will be fined.
- 3 months late: £10 added per day it is late up to a maximum of 90 days at £900.
- 6 months late: 5% of all tax owed or £300 (whichever is highest is used).
- 12 months late: 5% of all tax owed or £300 (whichever is highest is used).
- Other applicable penalties apply when information remains elusive.
It is important to note that these penalties are in addition to each other. We are talking about very severe penalties here, some of which could put small businesses out of commission.
Late Payment Penalties
The penalties for not meeting the deadline for paying tax owed are as follows:
- 30 days late: 5% of the tax owed.
- 5 months or more after the initial penalty: 5% of the outstanding tax by this point.
- 11 months or more after the initial penalty: 5% of the outstanding tax by this point.
How to Appeal Against a Penalty
If you have found yourself with a late filing penalty or a late payment penalty that you feel is unjust, you have the right to appeal.
It will be up to HMRC to decide if your reason is good enough for the fine to be erased from your file.
Reasonable Grounds for Appeal
Let’s take a look at some of the valid reasons that HMRC may accept for filing your return late. The list isn’t exhaustive and they will consider your plea on its merit.
Examples of reasonable grounds to appeal HMRC penalties:-
- You have suffered a bereavement.
- You have been in the hospital and unable to access your self assessment.
- You have been very ill.
- There was a technical issue during the submitting process on the HMRC side.
- Your computer suffered technical issues during submission.
- There was a serious incident which prevented you from filing a return in time.
- Postal strikes caused a delay which you did not know about.
- You have a chronic or mental illness which prevents you from submitting in time.
- You failed to understand your legal obligation. This is more so the case if you were doing your first one.
- You assumed it was completed and submitted on your behalf and it wasn’t, for example, by an accountant.
- COVID 19 impacted your ability to meet the HMRC deadline.
Some reasons will not generally be accepted by HMRC. These include:-
- There were not adequate funds in your account to process the payment.
- You struggled to use the online software.
- You had no reminder from HMRC.
- You made a mistake so did not submit it in time.
What if HMRC Made a Mistake?
You have the right to appeal a decision if you feel it was unjust or unfair because of a mistake made by HMRC.
You need to be prepared to explain clearly your case with as much evidence as possible. Let’s look at the appeals process itself.
The HMRC Appeals Process
It can seem a bit daunting starting the appeals process against a decision that HMRC have made. However, it is important to remember that it is your right to disagree with their decision if you have a valid reason.
You cannot appeal online or via the phone but you can use either of these options to request an appeals form. This will be sent to your home which you can fill in and send back to HMRC.
You can use the web chat to get advice on the appeals process and also give them a call. However, you cannot officially appeal using these options.
All forms of communication concerning an appeal are done via the post.
How to Appeal a Penalty by Post
You have two options available for appealing your self assessment late filing penalty. Both of these involve posting your appeal.
HMRC Appeals Form
You can use HMRC services such as web chat to request an HMRC appeals form. This is an official document that HMRC will send out.
You fill this in and post it back to them with the reasons you disagree with their decision.
Writing a Letter of Appeal
Alternatively, you can simply write a letter to HMRC. This should be titled “Appeal Against Penalty for Tax Owed” (or whatever it is you are appealing).
The letter should outline your reasons for being late with your submission or payment. You should then ask them to reconsider their decision. This letter needs to be done and posted within 30 days of the penalty notice.
In your letter should also be your UTR (unique taxpayer reference) and your name and other details. A date on the letter will show them the date you sent the letter, in case of any postal delays.
Your case will be considered by HMRC and then a decision will be made and communicated to you. This will come via a letter in the post.
If you appeal against a late filing penalty and it is declined, you still have the option to further appeal the decision.
This is done in two phases. The first is a review which you can request. During this review, someone not involved with the case will consider all sides. They will then make a decision which you can agree or disagree with.
If you disagree with the review decision then you can appeal to the tax tribunal. You can ask HMRC to put your penalty on hold until after the case is heard. This is useful if you are on a low income.
Case Study – My Experience Successfully Appealing a Late Filing Penalty
I have first hand experience of the appeals process, after an error meant I was hit with a self assessment late filing penalty. I have always been a stickler for getting my tax return done in advance so it was extremely upsetting.
However, life gets hectic and sometimes these things get pushed back until they cannot be ignored any more. I left my submission until a few days before the 31st of January deadline. However, I had all my numbers elsewhere so it was just a matter of logging and declaring my earnings.
Or so I thought.
Fined Due to a Submission Error
I worked my way through the form and made sure all the figures were correct. When I was happy with everything I clicked on the submit button.
When you click on this button, it gives you the option to close your tab down and carry on with your day. This is because the submission can take some time to process. It continues to process even once you close your software down.
This is what I did. I had a busy day and needed to get on with other things. So, I went into my online banking and made the payment I owed to HMRC. I then forgot about it and carried on with my day.
The money was taken and processed by HMRC but little did I know that my tax return itself hadn’t been received by HMRC. The first time I realised this was when I received a letter in the post telling me I had been fined £100.
I couldn’t understand what had happened. I logged back into my gateway account and was horrified to find my tax return still sitting there, unsubmitted. That was when I realised that there had been a technical issue and it hadn’t been properly submitted. I could see the money I had paid in tax sat in my account as a credit.
This was a pretty anxious moment. £100 at the beginning of the year was not an amount I could afford. I decided to contact HMRC via their web chat functionality. I have since discovered you can tweet for HMRC support at:- https://twitter.com/HMRCcustomers/
This may be a good option if you have a general query about your personal situation and are time poor. Waiting times for web chat are quite long.
How I Appealed My HMRC Penalty
I did not want to wait for the appeals form to be posted to me. The person on the web chat gave me the address and the header I needed to use and off I went.
That letter was written, copied and posted that same morning. I used the reason that the error during submission had caused the return not to be sent. I continued receiving notifications that I faced a penalty during this somewhat stressful process.
Eventually though, 3 to 4 weeks later, I received confirmation that my appeal was successful.
If I could share some tips with you all, these would be them:-
- Try to submit and pay your return in good time so that mistakes can be rectified before the deadline.
- Keep on top of your accounts month to month as it makes the self assessment process far less daunting.
- Fight for what you believe in. If you feel a mistake has been made then speak out about it. They will see how punctual you usually are with your claims.
- Don’t bury your head in the sand. If you cannot pay what you owe, be honest with HMRC. You cannot pay what you don’t have – they will allow you to set up a payment plan. You can do this online.
- Set aside a percentage of your earnings each month if you will owe tax.
- Lastly, check online that everything has gone through. Do not rely on emails – I didn’t receive any!
How Many People Get a Self Assessment Fine Every Year?
Research carried out in January 2023, shows that those on a low income are far more likely to receive a fine from HMRC. There have been calls for removing the late penalty for those who owe no tax.
The Tax Policy Associates research shows that that 400,000 workers under or just over the tax threshold, received a fine from 2018 to 2020. As soon as you are a day late with your submission, you are automatically fined £100. This number gets higher as time goes on and an individual could owe more than £1600.
Many go on and just pay the fine assuming they have no choice or are too scared to refuse. However, in most cases, HMRC will reverse their decision if the error was for a good reason. There are calls for HMRC to automatically cancel penalties when the return shows they owe no tax.
What Will Happen if You Don’t Pay Your Penalty?
Some might simply try to bury their heads in the sand and carry on ignoring the fine. This won’t bode well though and could be an expensive choice to make.
Penalties will not simply disappear over time. Penalties become more severe as time goes on and you simply end up paying so much more. If you feel you have been penalised unfairly then appeal. HMRC will consider your appeal and may waive the penalty.
By not doing anything and ignoring the situation, the money owed will keep increasing. You could be looking at more than £1600. HMRC will carry out their own investigations if no communication is had. This can lead to more fines or even criminal charges being brought.
Everyone must file a tax return when self employed. Even if you are sure you will owe no tax, HMRC still requires all the data from your tax year. Not filing when registered as self employed will mean penalties for late filing and non payment.
All taxes owed must be paid by midnight on the 31st of January. This is regardless of how you file your return.