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Corporation tax penalty

Client has received late filing penalty

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Basic position

Limited company formed May 2018, trade actually commenced in August 2018

We extended year end at companies house to make year end 31 July 2019 in order that first accounts actually showed a years worth of trade

Prepared accounts to 31 July 2019 and filed at HMRC and Companies House in January 2020

Client has received a £200 penalty in respect of a period ended 31 July 2018 that was apparently due by 24 August 2019?

If I write a letter explaining this will this penalty be dropped - bit unrealistic to set a deadline 24 days after end of accounting period

 

Replies (20)

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RLI
By lionofludesch
18th Feb 2020 17:41

I got one of these. I think it's to do with HMRC not coping very well with extended periods.

In my case, it was a period from 4 Aug 2018, trading actually started 1 Sept 2018, accounts made up to 31 Aug 2019. Time limit 31 Aug 2020.

Can't remember the exact details, but HMRC claimed the return should've been due by 16 Jan 2019. Utter nonsense, of course. I wrote and told them so, not heard anything yet but I don't really expect them to reply within a month these days. Or even two months, to be honest.

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By alialdabawi
18th Feb 2020 18:19

Wasn't the deadline 389 days after the end of AP? Not an unrealistic timeframe...
Or did you mean 24 August 2018?

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Replying to alialdabawi:
RLI
By lionofludesch
19th Feb 2020 08:21

alialdabawi wrote:

Wasn't the deadline 389 days after the end of AP? Not an unrealistic timeframe...
Or did you mean 24 August 2018?

31 July 2019 to 24 Aug 2019 = 24 days.

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Replying to lionofludesch:
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By alialdabawi
19th Feb 2020 09:21

What I was getting at was that the penalty is for a period ending 31/7/18, and due by 24/8/19, which is 389 days

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Replying to alialdabawi:
RLI
By lionofludesch
19th Feb 2020 20:11

If he doesn't prepare the accounts until 31st July 2019, how is it 389 days ?

Even if he produces them at midnight on 31st July 2019, it's still only 24 days.

And, anyway, that's not the law.

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By Wanderer
18th Feb 2020 18:37

Just tell them that the company wasn't within the charge to Corporation Tax (if it wasn't) for the period to 31/07/2018 and ask for the penalties to be cancelled.
or
Refer them to:-
https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm93030

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Replying to Wanderer:
RLI
By lionofludesch
19th Feb 2020 08:38

Wanderer wrote:

Just tell them that the company wasn't within the charge to Corporation Tax (if it wasn't) for the period to 31/07/2018 and ask for the penalties to be cancelled.
or
Refer them to:-
https://www.gov.uk/hmrc-internal-manuals/company-taxation-manual/ctm93030

OP says they did an extended period. Time limit is one year from the end of the company's period of account, not one year from the end of the chargeable accounting period.

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Replying to lionofludesch:
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By Wanderer
19th Feb 2020 09:18

lionofludesch wrote:

OP says they did an extended period. Time limit is one year from the end of the company's period of account, not one year from the end of the chargeable accounting period.

And how's that relevant to my post?
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Replying to Wanderer:
RLI
By lionofludesch
19th Feb 2020 20:13

Wanderer wrote:

lionofludesch wrote:

OP says they did an extended period. Time limit is one year from the end of the company's period of account, not one year from the end of the chargeable accounting period.

And how's that relevant to my post?

It's not some HMRC concession.

It's your right.

Which helps in a dispute with a jobsworth.

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By bernard michael
19th Feb 2020 09:53

I've got one similar.
Company formed 18/05/18 commenced trade 01/06/18
HMRC asked for CT return for year to 18/06/19
Cos house has an AP of year to 30/06/19
I filed a CT return for period 18/05/18 to 31/05/18 - NIL
and
Year to 30/06/19 - full accounts
Result penalty £200 - now under appeal

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Replying to bernard michael:
RLI
By lionofludesch
19th Feb 2020 19:45

You'll get it cancelled.

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By exceljockey
19th Feb 2020 12:06

Been in this position a couple of times and HMRC waived the penalty in each case. They took a while to come back but outcome was good.

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Replying to exceljockey:
RLI
By lionofludesch
19th Feb 2020 19:45

It's not waived. It was wrongly issued.

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By Duggimon
19th Feb 2020 16:02

This happens all the time and I've never failed to have it overturned by just writing and telling them the company wasn't trading.

The penalties are automatically generated, as soon as a person looks at them they'll waive them.

I think you can get them overturned over the phone but I usually just write because it's quicker (in terms of my time, I mean, it takes forever for the reply to come back)

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Replying to Duggimon:
RLI
By lionofludesch
19th Feb 2020 19:47

Duggimon wrote:

This happens all the time and I've never failed to have it overturned by just writing and telling them the company wasn't trading.

Even if the company was trading in the period, the time limit is still one year from the date of the accounts.

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By richard thomas
21st Feb 2020 14:56

I am not sure that HMRC is (always at least) at fault in these cases, as it may depend on how the CT600 is completed. The whole area of accounting periods, periods of account, return periods and filing dates is a minefield (not helped by the legislation being in at least 3 acts - FA 1998, CTA 2009 and 2010 - not to mention s 55 FA 2004).

Primarily for my own purposes I have set out below what I think the legal issues are based on the limited facts given by the OP, so I have made suppositions. There are probably places where I have triggered a mine and blown myself up.

THE KNOWN FACTS

Company incorporated in May 2018.

First source of income, a trade, began on 1 August 2018. That it was the first of August is assumed from the OP referring to a year’s worth of trading ending 31 July 2019.

Accounts prepared from (presumably) the date of incorporation in May 2018 to 31 July 2019, a period of more than 15 months.

TAX ISSUES

1. What are the periods of account?

There is only one, from date of incorporation to 31 July 2019.

2. What is the company’s obligation to HMRC?

To respond to a notice to file a return (paragraph 3 Schedule 18 FA 1998). In this case I assume that HMRC issued a notice to file for the period of 1 year from the date of incorporation, that is a period ending in May 2019.

The company must file a return for any accounting period (AP) ending within that period (paragraph 5(3) Schedule 18 FA 1998).

3. Did an accounting period end in that period?

No, because no AP began before the company started to trade (when it came within the charge to CT – s 9 CTA 2009) and so the company’s first AP ended on 31 July 2019 and was for the year ending on that date.

4. Does that mean it had no obligation to file a return?

No, because of paragraph 5(4) Schedule 18 FA 1998. It must file a return for the period from incorporation to 31 July 2018 which will obviously be a nil return as the company was not within the charge to CT in that period.

5. When is the return due?

By virtue of paragraph 14(1) Schedule 18 the last of:

• 31 July 2019 (paragraph 14(1)(a))
• 31 July 2020 (paragraph 14(1)(b))
• Some date in late 2019 (paragraph 14(1)(d)) [We are not told the date the notice to file was served, but I assume it was 24 or 25 May 2019 for reasons set out below]

The answer then is that the return was due on 31 July 2020. So no penalty has been incurred.

6. Why then have HMRC issued a penalty?

They are saying that a return was due for the period ending 31 July 2018. This is correct (see 4. above). They also say it was due by 24 August 2019. This can only be correct on the basis that (a) a notice to file was issued on 24 or 25 May 2019 (see paragraph 14(1)(d) Schedule 18 and third bullet in 5. above) and (b) no other paragraph of paragraph 14(1) can be relevant.

But this must be nonsense, because the return was filed together with the (only set of) accounts, those to 31 July 2019, so the filing date must be 31 July 2020 and HMRC can tell that by looking at the accounts.

Looking though at the CT600 and the accompanying Notes, I wonder whether HMRC’s actions depend on which of the boxes on page 2 of the CT600 was ticked. I assume that Box 30 gave the date of incorporation and Box 35 “31 July 2018” as that is the period for which a return was required. The correct box at the top of page 2 to tick was therefore box 85 as the accounts were for a different period from the period of the return.

But if Box 80 was ticked by mistake, then HMRC’s computer would assume a filing date of 31 July 2019 or if later the 3 months from the notice to file, presumably 24 August 2019.

I do not then jump to the conclusion that HMRC were necessarily wrong to charge the penalty on basis of the information they were given in the CT600 (I assume that the period of account is not entered into the computer).

If however the OP’s client ticked Box 85 then HMRC were wrong. But it may be that their computer is not capable of dealing correctly with cases where the period of account continues after the end date of the return.

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Replying to richard thomas:
Psycho
By Wilson Philips
21st Feb 2020 15:11

There is I think an unstated assumption here (although in the final analysis it shouldn’t be important). Has a return for the first dormant period been lodged? If not, then until HMRC agree that it isn’t due it would need to be filed to avoid penalty. But it remains the case that the filing deadline is 31 July 2020.

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Replying to Wilson Philips:
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By richard thomas
21st Feb 2020 15:17

I assumed so because the OP said that accounts had been lodged with HMRC and because I did not think you could lodge accounts without making a CT return online to which they are attached.

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Replying to richard thomas:
Psycho
By Wilson Philips
21st Feb 2020 15:28

Yes, but it would have been possible (I’ve seen it) to file a CT600 for the 12 months of trading only, with accounts for the full period of account, having assumed that no CT600 is required for the dormant period. But if HMRC have issued a notice to file covering the earlier period, and they aren’t advised that one is not due, they will issue a penalty (appealable) if not filed on time. But we’re digressing - whatever has happened in this case a penalty is not due for the dormant period (not yet anyway).

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Replying to Wilson Philips:
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By legerman
23rd Feb 2020 12:27

Wilson Philips wrote:

Yes, but it would have been possible (I’ve seen it) to file a CT600 for the 12 months of trading only, with accounts for the full period of account, having assumed that no CT600 is required for the dormant period. But if HMRC have issued a notice to file covering the earlier period, and they aren’t advised that one is not due, they will issue a penalty (appealable) if not filed on time. But we’re digressing - whatever has happened in this case a penalty is not due for the dormant period (not yet anyway).

I had this with my first period, which overlapped a year by about 17 days. Informed HMRC that i was trading from the 1st of the following month and they adjusted the CT600's to one covering the correct period.

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