Penalties for late tax returns. By Keith Gordon

I am not opposed to tax or any interest for late payment of tax but I do wonder if the government is able to raise revenue from the imposition of penalties?
Also am I still right in believing that by concession a limited company may file a corporation tax return up to seven days late without a penalty automatically arising?
As seperate legal entities should not individuals and companies be treated the same?

I filed several Returns between 29th and 31st January, some of them with cheques attached. In three of these cases, Penalty Notices ensued.
So I rang HMRC and asked to be transferred to the correct "local" tax office who confirmed that, in all three cases, both the Returns and the Payments had been logged in on 31st January. Why the Penalty Notices, then?
First answer: -
"The Returns were received too late to enable us to process them by 31st January, so Penalties become due".
Second answer after an observation that HMRC can obviously thus increase their take by holding on to Returns actually filed months before the deadline: -
"Because we haven't been able to process the Returns before 31st January, we cannot allocate the tax payments against any known liability, so Penalties become due. If there were no tax payments made, the problem would not arise".
I was then formally advised to the effect that I now have to submit written Appeals against all three Penalty Notices issued if I want HMRC to consider withdrawal of them.
In the meantime, I have three rather unhappy Clients who cannot be sure that I have looked after their interests properly.
Difficult to believe? I am not sure that I even believe it myself!

Dear Clint and David

With respect to Clint’s point:
I agree that a late return increases the risk of an enquiry. I would hope that protection firms will consider such cases sympathetically. I am not aware of the line that they are taking following the 31 January fiasco. This would be worth pursuing.

With respect to David’s point:
The penalty is still capped at the amount of the tax due and outstanding on the filing date – see TMA 1970, s. 93(7).

Presumably once the return is processed the amount of the penalty will be recalculated. But it is wholly unacceptable that taxpayers will receive documents suggesting that their agents have let them down when in fact the only let down is the HMRC procedure.

I hope that these two comments clarify matters.

Keith

I have always understood that the penalty is £100 or the amount of tax due, whichever is the lower. Has this changed since I have submitted returns with nil liability which have been processed and HMRC are still demanding the £100 penalty ?

I would add a heightened risk of enquiry. This is a subtly different from the point validly made that the enquiry window is extended. Extension of the enquiry window may of itself increase the risk of enquiry, but in practice enquiries are triggered by causes, and it is the cause of the extension (ie lateness of return) that in practice will have a greater influence on its selection for enquiry (which will probably be issued before the original enquiry deadline in any event).

It is this heightened risk of enquiry that causes most fee protection insurance cover to be withdrawn, being another consequence of late return, arguably of greater significance than a £100 penalty.

It may be conceivable that if the HMRC penalty notice is issued in error, or otherwise cancelled by an appeal (ie on "reasonable excuse" grounds) then there remains a heightened risk of enquiry, despite that the enquiry window is not extended and despite that fee protection cover is restored.