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Failure to notify for income tax returns

Just the failure to notify penalty applies not 5% surcharges in addition to this?

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Am I correct in understanding that my client who hasn't registered for self-assessment and done 17/18 and 18/19 tax returns, will only face a 'failure to notify' penalty and will not, in addition, pay 5% late payment surcharges? I have always thought the failure to notify penalty to be in respect of both late submission of the required document AND the late payment, am I correct? Thanks in advance.

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By Matrix
18th Feb 2020 21:39

I have not come across failure to notify penalties but if tax is paid late then the 5% surcharge will apply.

I just checked for a late filed 17-18 return where the tax was paid late and there was a 30 day and 6 month penalty each at 5% plus interest. No failure to notify penalty.

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Replying to Matrix:
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By Not Anonymous
18th Feb 2020 23:00

Matrix wrote:

I have not come across failure to notify penalties but if tax is paid late then the 5% surcharge will apply.

I just checked for a late filed 17-18 return where the tax was paid late and there was a 30 day and 6 month penalty each at 5% plus interest. No failure to notify penalty.

But was that return issued late? I think the op is questioning whether they will get the standard 3 months to file the return once issued plus a month before the 5% penalty is imposed?

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Replying to Not Anonymous:
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By Matrix
18th Feb 2020 23:19

Yes, otherwise I would not have posted. I don’t know what you mean by the extra month, I thought tax deadlines do not change regardless when notices are issued.

Here are all the details if it helps, fortunately for my client the amounts were very small.

My client’s 17-18 return was issued 14 August 2019 when the client registered for SA, return filed Oct 2019, tax paid Jan 2020.

So tax was paid just within the 12 months deadline so no 12 month penalty. OP’s client will get this additional 12 months late 5% penalty for 17-18 plus the 30 day late penalty for 18-19 unless they pay this tax in the next few days. Although I imagine any payment would be allocated to the earlier period’s tax/interest/penalties first.

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Replying to Matrix:
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By Not Anonymous
19th Feb 2020 07:59

Matrix wrote:

Yes, otherwise I would not have posted. I don’t know what you mean by the extra month, I thought tax deadlines do not change regardless when notices are issued.

Here are all the details if it helps, fortunately for my client the amounts were very small.

My client’s 17-18 return was issued 14 August 2019 when the client registered for SA, return filed Oct 2019, tax paid Jan 2020.

So tax was paid just within the 12 months deadline so no 12 month penalty. OP’s client will get this additional 12 months late 5% penalty for 17-18 plus the 30 day late penalty for 18-19 unless they pay this tax in the next few days. Although I imagine any payment would be allocated to the earlier period’s tax/interest/penalties first.

I think I'm behind the times! I had a recollection that if the return was issued late due to failure to notify then interest was charged from the normal due date of 31 January but the date a late payment penalty would be referenced to was the filing date of the return plus the standard month you get before late payment penalties are imposed.

So return issued today for 2018/19 would have to be filed by 19 May 2019. Interest would run from 1 February 2020 to whenever paid. Late payment penalty would only apply if an arrangement to pay hadn't been agreed and payment wasn't made by 19 June 2019.

But I think I must have imagined that or maybe it only related to the old Surcharge system.

https://www.gov.uk/hmrc-internal-manuals/self-assessment-manual/sam126080

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By richard thomas
19th Feb 2020 17:07

There is no reason in law why your client should not be liable to both a failure to notify penalty (under Schedule 41 FA 2008) and a late payment penalty (under Schedule 56 FA 2009), given that they have failed to notify for both tax years, within the relevant time limit, what is obviously a notifiable chargeability (or they wouldn't be liable to pay tax) and they have failed to pay any of the 2017-18 tax by the relevant deadlines of 2 March 2019, 2 August 2019 and 2 February 2020. This is subject of course to any claim that the client had a reasonable excuse or that there were special circumstances.

But if they are liable to both types of penalty in respect of the same tax, credit for any late payment penalty is given against the failure to notify liability penalty (which will almost certainly be the greater) – see paragraph 15(1) Schedule 41.

However the client cannot yet be liable to a late payment penalty for 2018-19 as the deadline is 1 March 2020 (so they had better get on and pay it). Interest will run for both years from the due date for payment (31 January 2019 and 2020) until payment (s 101(3) and (4) FA 2009) precisely because the client did not notify in time (s 59B(3) and (4) TMA)*.

I do not understand the comments by others which discuss late filing penalties and surcharges for late payment, both of which are irrelevant. You cannot be liable to a failure to notify penalty if you have been served a notice to deliver a return (s 7(1A) TMA 1970). And if, as the OP says, the client hasn’t registered for self-assessment, how would HMRC know about the client and serve a notice to file?

Once notification is made (eg by registration for self-assessment) HMRC will no doubt issue notices to file for the two years and the client will have 3 months to file the return, after which time late filing penalties will be charged. But that, if it happens at all, is for the future.

*Note for pedants. A literal reading of s 59B TMA might suggest that if a return has not been filed, no tax is due for payment on 31 January. The argument would be that there would be no s 59B(1) “difference” as there is no tax contained in a self-assessment if no return with a self-assessment has been made. I would not recommend trying it.

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Replying to richard thomas:
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By Matrix
19th Feb 2020 19:00

richard thomas wrote:

I do not understand the comments by others which discuss late filing penalties and surcharges for late payment, both of which are irrelevant.

Please would you explain what you mean by this? You have explained the penalties at length then said that you disagree with the penalties that others have mentioned?

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Replying to Matrix:
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By richard thomas
19th Feb 2020 21:17

Certainly. It was “notanonymous” who mentioned surcharges and by his reference to the 3 month deadline for making a return when the issue was after 30 October was it seemed to me also incorrectly talking about late filing penalties. The reference to “others” was a tad loose and was not intended to apply to you.

However I am still mystified about why you purported to answer the question. The OP asked about a client who had failed to notify and wondered whether he would be liable to both an FTN penalty and a late payment penalty, given that he had not paid the tax which he had failed to notify.

Your first comment was to the effect that you had not come across FTN penalties but a late payment of tax would lead to late payment penalties. Thus you were not answering the question posed by the OP, because it was outside your experience, but you made the rather obvious point that if you pay tax late you get a penalty.

In your second paragraph you said that you just “checked for” a late filed 17-18 return and that there was a 30 day and 6 month late payment penalty. You did not say in this post whether the person you “checked for” had failed to notify in time.

This comment was thus prime facie irrelevant to the OP’s post as you cannot get a failure to notify penalty if you have been served with a notice to file before the FTN deadline.

What you then later said in response to “Notanonymous” was that in your client’s case the notice to file was issued after the client registered for self assessment after the deadline and so was in fact liable for an FTN penalty but (going back to your first comment) had not received one. This may be because HMRC have a “care and management” de minimis limit for FTN penalties.

This then reinforced the irrelevance of the points you have made, unless your real point was that based on your experience HMRC never impose both FTN penalties and late payment penalties. This is not my experience.

I answered the actual question as a matter of law. It cannot be assumed that because your client did not get an FTN penalty that no one will ever, even if they get late payment penalties (which are automatic).

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Replying to richard thomas:
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By Matrix
19th Feb 2020 21:50

Thanks for clarifying. I don’t know if my reply was helpful to the OP or not since they haven’t replied.

At least they now have my practical experience and your legal explanation and I agree that, just because a FTN penalty was not issued for my client, it doesn’t mean they aren’t issued, especially as this registration will be even later.

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Bee
By May bee
24th Feb 2020 12:28

Thank you all for your comments on this. I have found everyone's input very useful. I have been unexpectedly diverted to urgent matters in recent days, hence the delay in acknowledging.
We haven't seen HMRC raise a FTN penalty within our Practice (or cant recall one anyway). That seems to reflect Matrix's comments and Richard's re a de minimis. We'll have to see what happens... I'll report back. Thank again!

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