Penalties | AccountingWEB


In my very humble opinion, in some areas are a disgrace - primarily VAT and PAYE.

VAT - I do not have a problem with a penalty for a late return, I do have a problem with a penalty where a return is on time but payment is late. I have no problem with interest on the late payment, but in the current climate firms are struggle to pay rising fuel and rent costs, to pay their staff and to be hit with large VAT surchages is hardly going to help them climb out of recession.

PAYE - again, penalties are so out of proportion with the offence, if you are serially a couple of days late every month, which may be due to customer payment patterns, many pay on the 15th, which often means the cash will not be in to pay the PAYE by 19th. To be hit with a 4% penalty for what may be little over a fortnights late payment over a year is absurd. Again, no problem with interestfrom 19th to date payment received.

This issue needs seriously looking at as firms are facing many rising costs outside their control without the ability to raise their own revenues to compensate.

At the very least the penalties should not apply until payment is 30 days late, and just have interest in that period. I dont even have a problem if the rate is racked like VAT surchages for continuing failures, but they should be spread as an annual rate over the days of default, not as a fixed amount, e.g. £5000 VAT late for 10 days at 20% would attract a sensible £28 interest, not a crippling £1000 which could finally finish off a struggling business and put even more on the dole.

If there must be fixed penalties they should at least be flat amounts along the lines of Companies House, increasing dependant on lateness, and not on a percentage basis as at present.

I should know better but am still constantly amazed at the short-sighted "small picture" view of the powers that be. Yes, yes, I know we should all pay our fair share of taxes due etc. etc. blah blah blah, but in the real world are aggressive and uncompromising collection strategies best for the big picture? I don't think so, you may boost the income side of the national P&L (short-term anyway) but you will also increase the benefits payments on the debit side, and at best you stay the same, but more than likely in the medium to long term the deficit will rise putting more and more strain on those left trying to run businesses to cover the shortfall.



Well said

fozia | | Permalink

I hear where you are coming from and agree 100%.  The number of clients near vat threshold turnovers, who are struggling to keep up with everything being thrust at them and also paying penalties left right and centre, because they are a one man band is ridiculous.  I have been tempted on many occassions to say they are better off on benefits!  The smaller businesses always seem to suffer the greatest, mostly lack of funding availability and no sympathy from the tax man when they ask for payment arrangements!



ShirleyM's picture

The most annoying part ...

ShirleyM | | Permalink

... is the companies who are trading, but don't even try to comply, and never submit anything, ever!

They get away with everything, no tax, no penalties, and HMRC & Companies House turn a blind eye.


pauljohnston | | Permalink

I do wonder whether having been hit with these PAYE penalties how many small businesses will be encouraging employeers to become self-employed.

With regard to VAT a number of small busineses are reduciong their turnover and de-registering.  One I heard of now is now beneath the VAT threshold having reduced turnover and is an employee for one day a week.  I just wonder how many near the threshold do "cash jobs" to avoid registering.

johnjenkins's picture

You got

johnjenkins | | Permalink

my vote OGA. Perhaps this is something the OTS could look at?

Euan MacLennan's picture

I disagree

Euan MacLennan | | Permalink

VAT is collected entirely from customers and PAYE is collected mostly from employees.  Apart from the employer's NI contribution, VAT & PAYE are not the offending party's taxes and he has no right to hold onto other people's money after the due date for paying them over to HMRC.  For this reason, interest is not an adequate sanction for late payment of VAT & PAYE.

You can complain that businesses should not be unpaid tax collectors, but they are and always have been, so what are you going to do about it?  I do believe that HMRC should be quicker off the mark to warn employers each time that they have paid over PAYE late, but the introduction of surcharges was well advertised.

HMRC promotes payment of both VAT and PAYE by direct debit, giving an extra 3 days to pay by this method, with the DD only being charged to your bank account on the 3rd working day after the 7th for VAT and on the last working day up to the 22nd for PAYE.  My only gripe is that while the VAT payment date is worked out automatically by HMRC, you have to enter it yourself for PAYE and might get it wrong.  If you are determined not to go along with HMRC's preferred method of payment by DD, then it is up to you to get the dates right and if you don't, to pay the penalty.

johnjenkins's picture

Sorry Euan

johnjenkins | | Permalink

don't agree with your logic. If HMRC make Employers unpaid tax collectors then they have to put up with late payments. We are coming to a point in our economic deveolpment that these sort of penalties (the penalty and compliance regime) are becoming grotesque. Eventually tax payers will not put up with them.

Old Greying Accountant's picture

Euan ...

Old Greying Acc... | | Permalink

... what you say would be more palatable if over paid taxes were refunded promptly (especially CIS) as that money does not belong to HMRC! Even more so when many legitimate businesses were put out of business by HMRC when they were stamping out carousel fraud, whilst on the whole the perpetrators got away scot free.  

That aside, you miss the point completely, if these firms ring fenced PAYE and VAT most would have been out of business years ago and all been signing on instead.

As anside on that, if HMRC ring fenced NI, which after all is not a tax (ha bloody ha) then we would have a world class health service  and not one that is disintegrating before our eyes , and further pensioners would not be freezing to death in their thousands.

Your argument is rather cold in the current climate. Most businesses, especially the construction chain, effectively have the same thing, if say the main contractor is late paying by  week it knocks down the chain and ends up with the guy at the end being 1 - 2 months late being paid, and if he is on invoice accounting he is stuffed as he has to pay over VAT that he has not actually collected for the government yet anyway!

The fact is most businesses pay late because they have no alternative, other than possibly losing their house by missing the mortgage payment, and they can't downsize because no bugger will give them a mortgage to buy a smaller house.

I am just glad I live in a real world of real people and not cloud cuckoo land.

taxhound's picture

I think...    1 thanks

taxhound | | Permalink

The major problem I have with HMRC's draconian attitude to penalties etc these days is that they are responsible for a large number of mistakes and errors, yet their is no recourse when they get it wrong.  Clients have to wait months for tax rebates and have to enter into lengthy correspondence to simply get back what is rightfully theirs.

Yet if the taxpayer is just one day late making a payment or submitting a return, the penalty system comes down on them like a ton of bricks.

I would agree that the PAYE office and the VAT office in particular seem to be in a big mess at the moment.  They need to sort out their own affairs before they introduce such a tough system.  If they were running a business is would have folded years ago.  They are not fit for purpose.

mr. mischief's picture

Agreed    1 thanks

mr. mischief | | Permalink

I support the comments above.  It's not merely that businesses are unpaid tax collectors which is bad enough.  The vast numbers of rules - many of them silly, see the controversy on this site just in the past week on business entertainiing which is in itself just a minor expense area for most businesses - make it more or less impossible for any business to comply with them in full.

I have worked for several different PLCs, NONE of  which would have been in full compliance with the Business Records Checks process as set out by HMRC, except possibly for the day before the auditors arrived each year!  These are businesses ranging in market cap. from £50m to £10 billion plus, what on Earth gives HMRC the right to bash small businesses over the head with BRC when our biggest companies would fail the test?

The aggressive £400 PAYE penalty approach, the surcharges, the totally unhelpful jobsworthy attitude of 80% plus of HMRC staff make the current regime at times more like dealing with the NKVD than HMRC.

I have a client who lost her company UTR number and has made 8 phone calls over 3 days to the always engaged HMRC office - Dundee, clearly the most efficient place to run company taxes for the Lake District from!  So I still don't have the UTR with which to file the corporation tax return.  This is just one example.

It does not have to be like this.  See my posts on the Revenue Service of Ireland - I'd give them 9 out of 10.  A generous mark for HMRC like for like is 2 out of 10.


taxbakbristol's picture

Totally Agree

taxbakbristol | | Permalink

How can HMR&C issue penalties and surcharges when I still have CIS refunds due from the P35 sumitted in MAY 2011.Just think how much a business woulkd have to pay in interest, fines and penalties if they had not sent in:



Monthly PAYE/NI

Companies House Abbv accounts

Need I go on!!!


HUGH W DUNLOP | | Permalink

Why should you not pay VAT on time. It is, after all, a tax on the difference at which you buy an item and that at which you sell it. If your profit is so low that you cannot afford to pay this on time, perhaps you should not be in business. As for complaining that you are often waiting for customers to pay their invoices, can you honestly state that you have paid in full all the purchase invoices on which you are reclaiming VAT?

As for payment of PAYE and NI, at last HMR & C are making inroads into correcting employers attitudes to this. Employers deduct tax and NI from their employees wages, but do not pass this on to HMR & C for months, if at all. (Free loans to the companies) With this in mind, as from this month, employers perceived to be at risk--------will be required to make payments in advance. So Glasgow Rangers were not alone in that respect. 

But I would agree that HMR & C records are a shambles. After months of correspondence, I finally got a long outstanding tax repayment made on 5/12/11. Yet when I recently looked up my file online, there is no mention of the repayment, but there is a small amount of tax still due. Could anyone advise me? Can I make a further claim for the repayment made, of which they are apparently unaware, and pay the small amount of tax shown on their website? My wife could do with a new collection of clothes for summer!

Old Greying Accountant's picture

It is hard ...

Old Greying Acc... | | Permalink

... to pay VAT on time when you are owed tens of thousands of pounds from CIS tax deducted from you that takes 2 years to be repaid!

Being on cash accountaing, yes, I have always paid in full every invoice on which I claim VAT, same with many of my clients, but overheads are due with boring regularity, if a large debtor takes longer than terms to pay then who do you pay, the Landlord, your key supplier or the VAT man?

One thing I hate is sactimonious ill informed opinion, it is nothing to do with profitablility, everything to do with cash flow, and the Government is the stongest creditor to take late payment - as opposed to trade creditors, many of whom will be facing similar problems.

Yes, there are firms that take the p**s, always has been and always will be, but many firms struggling with cash flow get punished disproportionately to the "crime" they commit. 



HUGH W DUNLOP | | Permalink


As one OGA to another, the answer is to keep at them. I did for nearly 6 months before I got my rebate. You know your accounts office, so send them a very strongly worded letter, marked both on the envelope and on the letter 'OFFICIAL COMPLAINT', and if that does not work, go to the top of the tree.

With regard to cash accounting, unlike normal VAT which is due quarterly, under cash accounting you pay VAT only when your customer pays YOU. If your customer never pays, YOU never pay. SIMPLES! No problem as to whom you pay first. Or are you doing it wrong?

If you are making payments under the normal method, provided you have satisfied general conditions, paid all VAT due, including that originally due on the bad debt, the debt is more than 6 months old, internal books noted accordingly etc, you will find a box on your VAT return for claiming relief on bad debts. As bad debts, slow payers, normally amount to a very small proportion of sales, provided you have made agreements as to payments with your customers, and have a good credit control department (not the man with a stick and a dog as many of us OGAs recall) one bad debt should not floor you, unless you sell carpets (sorry! could not help the bad pun)

If it takes you 2 years to sort out your own affairs. how do you get on with those of your clients? I hope you don't tell them of your own problems.



VAT return box for bad debt relief?

BKD | | Permalink


If you are making payments under the normal method, provided you have satisfied general conditions, paid all VAT due, including that originally due on the bad debt, the debt is more than 6 months old, internal books noted accordingly etc, you will find a box on your VAT return for claiming relief on bad debts.  



johnjenkins's picture

You shouldn't have

johnjenkins | | Permalink

to chase for 6 months until you get something that is yours. I am in the process of trying to get interest charges vacated from late payment of corporation tax due to late payment of refund of CIS tax. As HMRC are not now preferential creditors what right have they got to demand money just because it is VAT or PAYE. If they want us to be unpaid tax collectors then they will have to put up with the "trade risk" as does every other creditor.

Old Greying Accountant's picture

I didn't say it took 2 years to sort out my affairs ...

Old Greying Acc... | | Permalink

... that was a saga with a client well documented on here!

Not simples, if you don't get enough customers paying you to cover your overheads you will still have to pay the VAT over on those that do.

Simple example, income £120,000 pa, expenses £96.000pa, mainly wages and rent with no option to tax.

If you only receive £15,000 from the scheduled £30,000 you have a problem, overheads of £24,000 need paying plus VAT, which even on the FRS at a favourable rate is likely to exceed £2000.

If you are in construction, slow payers make up most of your debtors, yet employees/subcontractors need prompt payment as do suppliers (especially if you want favourable trade discount terms).


WhichTyler | | Permalink

Old Greying Accountant wrote:

Simple example, income £120,000 pa, expenses £96.000pa, mainly wages and rent with no option to tax.

If you only receive £15,000 from the scheduled £30,000 you have a problem, overheads of £24,000 need paying plus VAT, which even on the FRS at a favourable rate is likely to exceed £2000.

Bad example, I'm afraid, because that's a working capital problem, and it shouldn't be up to the state (i.e. other taxpayers) to finance your receivables. There is nothing to stop you storing up an appropriate reserve from past profits, or seeking overdraft finance elsewhere. Those are the entrepreneurial breaks.

And the VAT in this case works in your advantage, because you have had £3k of VAT in (20% of your £15k income) and only paid over £2k (apologies if I've misunderstood the example)

In short, times are hard, and some poorly capitalised or marginally profitable businesses will fail. But if you have been advising your clients well (and they took the advice!) they will be in a better position than most, won't they?



Old Greying Accountant's picture

Yes but ...

Old Greying Acc... | | Permalink

... my point is yes many are struggling, but could continue if they weren't being hit with "interest" rates loan sharks would be proud of. A 15% VAT surcharge if the payment is one day late is an annual equivalent rate of 5475%.



late payment

HUGH W DUNLOP | | Permalink

When filing online, compulsory for most from this month, you are given an extra 7 days in which to make payment. Builders, especially new build, may be able to zero rate their supplies. See VAT site online.But, I largely agree with WhichTyler. The registered person should have received more VAT than he paid out. Also, if he uses cash accounting for VAT, he need not pay VAT until he has been paid.


WhichTyler | | Permalink

Old Greying Accountant wrote:

A 15% VAT surcharge if the payment is one day late is an annual equivalent rate of 5475%.


As you know, the VAT penalty surcharge is progressive, and only reach a 15% surcharge for the 6th late payment in a default period (if your t/o is under £150k). And you've had the output VAT for an average of two months (interest free btw). And you may get Time to Pay if you contact them before the return is due. So in all (and from a taxpayers PoV) I think it's reasonable. As they've already got the money, it's the underlying business problems that are causing the late payment that leads to penalties, not HMRC. Do you think its realistic that if HMRC give traders credit for unpaid VAT or PAYE, they will get it all back in the end? I suspect not. It is hard enough to get some small businesses to respect any deadlines, and there is a strng risk that just charging interest will mean they ignore the problem, and be even less likely to pay in the end.

Of course I agree that HMRC should cough up on time when they are the debtor.


Old Greying Accountant's picture

Do I need a passport ...

Old Greying Acc... | | Permalink

... to visit your world?

johnjenkins's picture

But isn't

johnjenkins | | Permalink

that what Gordon Brown was trying to achieve. By penalising up to the hilt in order to create a perfect system. Why not change (this one Clarkson would like) it so that there wasn't a penalty but you were thrown in prison for 30 days (time optional) for not paying your taxes. It might cost the government a bit at first but after a while just watch the £'s rolling in.


HUGH W DUNLOP | | Permalink

Not required, but you may have a password enabling you to log on to HMR & C website to get up to date info about the real world, with all its imperfections.

But you may prefer to act like the trader who transferred his grocery shop to my client. When asked for his VAT number, I wished to change this to avoid my client being hit with any penalties associated with that number, replied 'What VAT number. I do things the------way. How they are done where I come from'. His lawyer claimed he did not know what his client's turnover was, nor his VAT number. And yes, due to the turnover, I had to report this to the VAT in order to register my client.

As there was no goodwill involved, due diligence was not required, only a valuation of stock by an independent firm.

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