Tax and Companies House penalties

Treatment of fines penalties and interest in your accounts

Late penalty
Penalties are not a tax allowable expense in your accounts. For tax purposes they are treated as a fine, not for trade purposes, they should be included in the figures as Statutory Penalties and adjusted out in the tax computation as penalties not tax deductable.
Similarly any professional fees and other tax enquiry costs or tax investigation cost are not allowable.
Interest allowable expense:
Where tax or VAT interest is paid on overdue tax, this can be an allowable business expense deductable for tax purposes. Carefully separate interest due from the tax payment and book it as Other Interest.
Court and bailiff costs are an allowable business expense for companies or self-employed, sole traders. Carefully separate these from the penalty, tax and interest payment and book them as Legal fees - trading.

Companies House late filing penalties; late submission

See tax treatment See Penalties on this page index See Corporation Tax three times late penalties on this page

Penalties still apply to dormant companies.
There is no such thing as a Companies House nil return.

Penalties for late filing are subject to prompt invoice and follow-up; quickly running to a solicitors letter then Court action, incurring further court costs, and County Court Judgment if you do fail to pay but are not payable after Companies House strike off the company; see restoration below.

Companies House striking off and prosecutions

Striking off by arrears of filing
Almost as many companies as are registered are struck off the register in any year. This normally results from failure to file the AR01 annual return. Striking off is a big problem if you are trading because the bank will freeze your account and there is a legalistic procedure for restoring the company. Please contact us to avoid strike off happening. If it has already happened we can help with restoration services and new banking arrangements if necessary.

Allowing your company to be struck off
You may wish the company to be struck off but HM Revenue & Customs, and any potential creditor, may raise an objection to the striking off which halts the process until outstanding matters have been settled. In the case of HM Revenue & Customs this is likely to be an outstanding CT600 Company Tax Return due together with related accounts and tax computations and outstanding form VAT100 Value Added Tax Returns or VAT form 193. You need to complete the VAT deregistration procedure and form VAT193 Final Value Added Tax Return.

Taxes for a company which has already been stuck off
When a company has been struck off, in practice, normally there is no further filing with HMRC once they are informed of the striking off, however, you should complete any outstanding returns due and pay any applicable taxes. Generally HMRC take the view that "The directors are responsible for ensuring that the company is not struck off before the company affairs are concluded." Receipts by individuals could be taxable. Whether HMRC take any action is a matter for their choice. Any creditor who wishes to pursue the company needs to apply for it's restoration. Any action by HMRC is more likely to be taken against the directors. Shareholders are expected voluntarily to prepare outstanding returns and pay outstanding tax.
When directors have agreed a striking off with HMRC under Extra Statutory Concession C16, they remain liable for any further taxes which may arise from an enquiry or investigation.

Prosecution and criminal record late filing accounts and form AR01
Striking off can be avoided by liaising with Companies House but the time will come when they start criminal prosecution procedures. If you should receive a letter specifically notifying a final deadline before prosecution, or 21 day extension by email, it is important to comply. After that date prosecution will take place and deferral of the date will not be entertained. Any accounts or annual return filed later will be reported at the court hearing but criminal conviction, fine and award of costs is a foregone conclusion, based on the facts. The best that you can expect to achieve at this point is mitigation of the fine.

Striking off to escape the burden of penalties
Neither Companies House nor HM Revenue & Customs will hold a company on the register for the sole purpose of recovering penalties. If the balance of penalties outweigh the value of maintaining the company, liabilities may be settled and assets distributed, subject to normal tax and legal considerations, and the company struck off. Once the old company has been struck off a new company can take the original name. This procedure should be completed professionally and you must be careful to avoid fraudulent results.

Company restoration with Companies House
A company will only be restored after all outstanding accounts are filed and penalties are paid.
Companies House penalties stop increasing from the date the company is struck off but HMRC penalties continue to accrue.

HM Revenue & Customs late filing penalties; late submission:

Corporation tax late filing penalties; late submission

Corporation Tax is payable nine months after the Corporation Tax return period ending and interest is charged after that date.
1 year late; overdue filing taxes:
Penalties are charged for form CT600 Company Tax Return due and filed later than a year after the Corporation Tax return period end.

See tax treatment See Penalties on this page index

Corporation tax penalties are still applied where the company is dormant or where there is no tax payable. There may be grounds to appeal. Penalties are not payable after Companies House strike off the company.

Seven days grace period
The seven day late filing grace period for CT600's, which has been allowed since 1995, was revoked with effect from 31st March 2011.

Paying self assessment
Unless you have made specific alternative arrangements you need to pay any Self Assessment tax due on 31st January and 31st July. Daily interest is charged after the personal tax scheduled payment dates. Any interest paid may be an allowable expense in your self employed sole trader or partnership accounts but penalties are not allowable.

If you need time to pay see Time to pay tax.

There will be a 5% penalty on personal tax paid later than . Tax should be paid even if you do not receive a statement or even if the return has not been filed. Interest will be charged on all personal tax and penalties, due under Self Assessment, paid later than normal due dates.

Self Assessment Personal tax late payment penalties extended tax year 2010/11 onwards
Also applicable to late payment of Student Loan repayments when these are calculated and paid through self assessment

VAT penalties for late return submission; late filing, and/or penalty for late payment of VAT and late VAT registration:

Return and payment must both be on time see Paying VAT online.
VAT not filed on time
Late submission of returns or payments result in moving up the scale while on-time returns and payments result in moving down.
VAT151 form
Late VAT returns result in a form VAT151 Notice of Assessment of Tax; an estimated assessment based on your normal sales but without allowing for any costs. Paying the assessment is not a substitute for filing the return and paying VAT. When you file the return the estimate will be amended and penalties will be assessed on the following scale:

Penalty for filing late VAT return:
Failure to file VAT return or submit payment on time - number of times late:
1. warning.
for small traders with annual sales of less than £150,000 excluding VAT HMRC will send you a letter offering help and support.
2. 2% of VAT payable if this is more than £400, otherwise nil.
second warning 'Surcharge Liability Notice' for small traders .
3. 5% of VAT payable if this is more than £400, otherwise nil.
4. 10% of VAT payable.
5. 15% of VAT payable.

Late payment VAT penalties are avoided if you reach agreement under the Business Payment Support Service in advance of the due date.
If there is a refund or no VAT payable there is no VAT penalty but the late return will register for Times late in the totting-up scale of percentages which will be applied to subsequent returns which may be filed late. Where the VAT return is not submitted HMRC will continue to pursue estimated assessments and penalties until the return is filed.
An accumulation of penalties will be levied if you fail to register for VAT at the compulsory date.
See tax treatment See Penalties on this page index

PAYE/NI annual late filing penalties P35 returns; late submission

Less than 50 employees:
£100 per month late up to £1,200 maximum.
More than 50 employees:
and a further £100 per month late per additional 50 employees so 150 employees is £300 per month late.
Nil P35 - No penalty if there is no amount of PAYE or NI payable; but this will only be agreed after the return is filed.
You will be assessed for P35 penalty even if you only have CIS deductions; reduced to nil when you file a nil return.
If you do not file the P35 online there is a penalty, depending on the number of employees, up to a maximum of £3,000. There is no mitigation for subsequently filing the same form online.

The seven day grace period after the 19th May deadline, which has been allowed since 1995, was revoked with effect from 31st March 2011.

P45 and P46 not filed online penalties

From 6th April 2011 there are penalties for failing to file P45's and P46's online. Penalties were already applicable for payrolls with over 50 staff. There is no mitigation for subsequently filing the same form online. If we are doing your payroll we already file all P45's and P46's online. Also, you can complete our online form P46 for your new starters.

P11D(b) Return of Class 1A National Insurance contributions due
Return of expenses and benefits - Employer declaration; late filing
late submission penalties

P11D returns submitted after 5th July incur late filing penalties:
Less than 50 employees on the payroll:
£100 per month late up to £1,200 maximum.
More than 50 employees on the payroll:
and a further £100 per month late per additional 50 employees so 150 employees is £300 per month late.

CIS Construction industry scheme late filing CIS300 monthly returns; late submission

£100 per month late for each of the monthly returns. This can quickly run out of hand and there is virtually no argument which will be accepted in mitigation.
CIS filing deadline is: for deductions up to the 5th of the month by the 19th of the same month.
Nil return CIS penalties
Penalties still apply to a nil CIS returns filed late, reduced to £100 when the return is filed.
You can agree a period of no returns in advance if there is to be no activity.

Loss of CIS gross payment status:
CIS gross payment status can be revoked because of late filing of any tax return or late payment of any tax.
Avoid jeapordising your CIS gross payment status with late payment; by making a Time to Pay arrangement before the payment is due and paying according to the arrangement.
You then need to appeal against any notices you should subsequently receive. Time to Pay arrangements are often not advised to other parts of HMRC.

If you are charged a CIS penalty for a return up to 5th October 2011
You can agree a reduction to the new system which is applicable to all CIS300 monthly returns
due on or after 5th November 2011:
Late: £100.
Two months late: a further £200.
Six months late: a further £300 or 5% of the tax due if higher.
Twelve months late: additional enquiry-style penalties apply:
Deliberate and concealed: the greater of 100% of deductions or £3,000.
Deliberate but not concealed: the greater of 70% of deductions or £1,500.
Otherwise: a further £300 or 5% of the tax due if higher.
Highest penalties levied if they are your first CIS returns; the maximum is £3,000, including for late CIS registration, except for tax geared penalties.

There is no CIS annual return for but a PAYE scheme may exist under the same scheme reference. If so, a P35 needs to be completed by 19th May; nil returns must be filed to avoid or cancel the P35 penalty.

Employer's PAYE NI and CIS late payment penalties

Provisions are now in force, with effect from 6 April 2010, to charge a penalty where PAYE and NI tax is paid late. Also CIS payments. The liability to a penalty is based on a totting up procedure depending on the number of defaults during a tax year. A penalty will not be levied for the first default and will then rise as follows:
Penalty % of tax payable
Times late: Once nil
Twice 1%
Three times 1%
4 to 6 times 2%
7 to 9 times 3%
10 + times 4%
balances unpaid:
six months late +5%
twelve months late +a further 5%
See tax treatment See Penalties on this page index

From 6 April 2012 HMRC are expected to have powers to require a security from employers for PAYE and NI that is seriously at risk. This will be either a cash deposit or bank guarantee. Failure to comply will be a criminal offence with penalties, so far not announced. Banks will view guarantee applications in the same way as a borrowing application.
This HMRC power would seem to be largely superceded by the new PAYE system Real Time Information RTI implementation April 2013.

HM Revenue & Customs enquiry and investigation penalties:

There are escalating penalties for not submitting records requested in an enquiry or investigation to HMRC within a reasonable time.

Tax adjustments and penalties arising from enquiries or investigations

Tax enquiries: The new structure for adjustments to tax figures (potential lost revenue) and penalties is applicable where filing is due on or after 1.4.2009 relating to a tax period starting on or after 1.4.2008.

This widely means Form SA100 Tax Return for the year ended 5 April 2009 onwards and company year ends 31 March 2009 onwards.

Where the taxpayer disagrees with the inspector about tax assessments or penalties an appeal may be made to the tribunal service.

Adjustments to tax figures will be netted off against any overpayment of tax found in the same period.

Overpayment by another person or company etc. will not be netted off against the adjustment. This will need to be subject of an error and mistake claim which may or may not be accepted by the tax office.

Minimum to Maximum penalty

Timing adjustment only: correct tax paid later than due 5% minimum to a maximum of 5% per year of delay
All others:

* Careless, unprompted disclosure 0% to 30%
* Careless, prompted disclosure 15% to 30%
Deliberate but not concealed, unprompted disclosure 20% to 70%
Deliberate but not concealed, prompted disclosure 35% to70%
Deliberate and concealed, unprompted disclosure 30% to100%
Deliberate and concealed, prompted disclosure 50% to100%

Prompted disclosure means after an investigation has started. Unprompted means that the person making the disclosure has no reason to believe that HMRC have discovered or are about to discover the inaccuracy.

Mitigation of penalties arising from enquiries or investigations

If you can demonstrate that you have taken reasonable care, the penalty can be reduced to the bottom of the band. Some of the ways in which you can take reasonable are:
. keeping reliable records to help prepare accurate tax returns.
. checking what the correct position is when you don't understand something.
. notifying errors in filed documents as soon as you notice them.

* Careless, unprompted or prompted disclosure penalty:
The whole penalty may be waived if the taxpayer complies with certain record keeping conditions over the following two years.

All enquiry and investigation penalties: mitigation between maximum and minimum:
Telling the inspector about the offence 30%
Giving the inspector reasonable help 40%
Allowing the inspector access to the relevant records 30%
Total mitigation from maximum to minimum 100%
There is no other mitigation below the minimum.
See tax treatment See Penalties on this page index

Avoid or minimize penalties; talk to us.