How to avoid HMRC penalties and fines at self assessment time

If you submit your self-assessment tax return late, fail to pay any tax you owe on time, or make errors in your submission, you could find yourself liable to a wide range of HMRC penalties.

Here we look at what happens if you are penalised, and provide some easy steps to take to ensure you keep on the right side of the taxman.

Of all the taxes contractors are responsible for paying – Corporation Tax, VAT, PAYE and National Insurance, and Self Assessment – it is the personal tax return which results in the majority of penalties.

Failure to submit your SA return on time

You will face an immediate penalty if you miss the 31st January deadline, and the fines steadily mount up for as long as the return remains outstanding, and any taxes remain unpaid.

Emily Coltman, chief accountant at FreeAgent, told us:

“The most commonly applied penalties I’ve seen have been for Self Assessment tax returns filed late.  HMRC will levy an automatic £100 fine if you file your SA return even a day late, and that applies even if you don’t owe any tax or have paid all your dues.

“If you leave it more than 3 months to pay then HMRC can start levying additional penalties which start at £10 per day.”

Failure to pay any taxes owed on time

If you owe any personal tax and fail to pay by the annual 31st January deadline, you’ll also be faced with additional fines – starting with 5% of the total tax due if you’re 30 days late.

After 6 and 12 months, additional 5% fines are applied, in addition to the fines imposed previously.

You will also have to pay interest (at a current rate of 3%) on any overdue taxes, so clearly it is in your best interests to make sure you meet the statutory deadline.

Mitigating circumstances

The majority of taxpayers who end up with a SA penalty have only themselves to blame.

However, if you’ve missed a SA deadline for a genuinely good reason – you may be able to get a penalty overturned, but you’ll need a good excuse.

Emily Coltman explains:

“It’s the taxpayer’s responsibility to file their tax returns on time.  HMRC will accept what they call a ‘reasonable excuse’ for filing your tax return late, but relying on someone else who let you down is specifically not classified as a ‘reasonable’ excuse.”

Examples of  ‘good excuses’ provided by HMRC include; having a life-threatening illness, being hit by unexpected postal delays, or even the late receipt of your online Activation Code.

Examples of ‘unacceptable excuses’ include; not having sufficient funds to pay any tax owed, relying on a third party who failed to submit on time (typically an accountant), or not receiving an HMRC reminder to submit a tax return.

How to avoid a self-assessment penalty

• Make a note of the deadlines in the first place. You must submit your tax return by the 31st January following the tax year in question. This is also the deadline by which any tax liabilities must reach HMRC, i.e. the funds must be in the HMRC bank account by close of play.
• Keep accurate records during the year, and don’t leave things to the last minute. Paperwork to gather includes; your P60, bank statements, details of child benefits received money received from extra business activities (e.g. selling items on eBay), and income from investments and property.
• Take great care including all sources of income received during the tax year, as you could face further measures if errors are found within your submission. Ask your accountant if you’re unsure what you need to include on the return.
• Don’t forget that you are ultimately responsible for submitting your SATR on time, not your accountant, so keep tabs on the progress of your return if you aren’t submitting it personally.

Further Information

• For more information, read HMRC’s guide to Self Assessment deadlines and penalties.
• You can download a really useful Self Assessment checklist from the FreeAgent website here (one for the self-employed, the other for company owners).