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SA penalties

SA penalties

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Hi all,

I am new to business. I do bookeeping and some SA (family and friends mainly)

I did a paper return for a friend last May after he missed the deadline and got lost in the post or at their office(HMRC), not sure, as every time you call you are giving different info on the same question by the staff.

In October they sent out a letter saying he must pay the penalties. I contact them been asked to sent a copy of initial return. I did send it special delivery this time.

I got another letter saying they don't accept copies and we must do an online return and until then all penalties are on hold.Did it online and they replied to the appeal saying that he must pay the penalties as they only received the return in December 2013 (when I did it online).

We request another review of the appeal by another HMRC officer and now got their reply saying that the appeal is not accepted and if we want must go to tribunal.

My client now is holding me responsible for his return not being received by HMRC in the first instance (I posted on his behalf 1st class in the envelope provided by HMRC) and wants me to pay the penalty.

If I must pay it I will make a loss. Can I claim it in my SA - (I operate as self employed)?

I 've read something about carrying back losses than forward.I've been registered selfemployed for a no of years and did my SA all this time but only on my employment.It's only last year when I started to have some selfemployment activity as well. How would this work if previuos years I've been employed?

Please , if I can have some advice from you.

Regards,

S

Replies (27)

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By mikeyban
31st Mar 2014 07:08

Firstly have you got PI insurance? If not get some.

Secondly I think you should see an accountant with a little more experience. This should help to understand the sequence of events.

I would hold your nerve ... No admission of any responsibility and contact insurance and be guided by them.

If no insurance seek help now to mitigate the position.

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By bernard michael
31st Mar 2014 09:03

I thought you said you did the return for a FRIEND  - Some friend

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Replying to Wanderer:
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By SimonaC
31st Mar 2014 09:57

It was a friend - someone I knew at the time, but now when turns to me to pay for this...I can debate it, can't I?

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By ACDWebb
31st Mar 2014 09:17

Wasn't the return late before you even started?

"I did a paper return for a friend last May after he missed the deadline"

What year was the return for?

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Replying to Sally26:
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By SimonaC
31st Mar 2014 09:54

The return was for 2011-2012 and it was late when I started.

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By Flash Gordon
31st Mar 2014 10:14

Some advice

As you're new to business let me give you some advice that you'd do well to take in future - do NOT do work for friends or relatives. Whether they pay you or not just don't touch them. It always works out far worse than it would with a normal client and you either get shafted or lose a friend (or both). Make it a policy and stick to it - if they say 'can you do me a favour' your response is 'sorry but I never act for friends / family' 'but why' 'it's just my policy, I value your friendship too much' (try not to choke at this point). Repeat as necessary.

Trust your Uncle Flash. Been there, done it, didn't learn quick enough.

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By ACDWebb
31st Mar 2014 10:55

How can he now expect you to be responsible

for a penalty that was due before you even became involved!?

Another case for the response in Arkell v Pressdram methinks

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Replying to elliottchandler:
Stepurhan
By stepurhan
31st Mar 2014 11:02

A most valuable response

ACDWebb wrote:
Another case for the response in Arkell v Pressdram methinks
Nothing quite so satisfying as referring someone to the response in this case.

I concur with Uncle Flash (whom you should not do any work for, as he is apparently your uncle ;-) ). Don't mix your business and personal life. It is one thing to become friendly with your clients, a good rapport helps the business relationship. Starting from the other end is a recipe for trouble that rarely goes well.

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Replying to elliottchandler:
RLI
By lionofludesch
31st Mar 2014 12:35

To be fair.....

..... the penalties would have started escalating rapidly from May 1st.

I had some penalties for a client and his wife - £1300 apiece - and they were cancelled immediately (much to my surprise) when I submitted an appeal.

Worth a try - then everyone will be happy. Happy to supply the wording I used, should you wish.  No guarantees, mind.

Or ............ is there a record of posting - even a note on your file ?  Ask for their proof of non-arrival that they'll be relying on at the Tribunal ?  Has a return never - in the Officer's experience - got lost within HMRC's office ?  Create enough doubt in their minds to make them think twice about accepting your offer to resolve it at the Tribunal?

One final thought - one of the advantages of electronic submission is that you know it's got there.

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Replying to carnmores:
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By SimonaC
04th Apr 2014 22:37

Hi , Thank you for your replies. I'll take the offer with the wording, if still available.

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By ACDWebb
31st Mar 2014 13:33

...indeed

it struck me after I posted 'the case' that we could have been moving to a nasty daily penalty position, but still I love that response :)

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By Chris08
31st Mar 2014 15:21

Just to state the obvious

Hate to say it, but your decision to file the return in March on paper would have put your friend in a worse penalty position anyway - if you were hoping to reduce the penalty to £100 you would be wrong.  

Deadline for paper returns is 31 October, and penalties will be recalculated from 1 November on any received after that date. Choosing to post a return to HMRC in March would therefore have put those penalties well into the daily rates - and the best position you can expect even at tribunal will be a few hundred pounds.

The non-receipt by HMRC will have made things even worse, but you were going to have problems even if HMRC had processed that return.

And agree with previous posters - never work for friends and family.

 

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By lionofludesch
31st Mar 2014 15:56

Doh!

Of course, you're right, Chris.

The "client" would immediately clock up an additional £1200 as soon as the paper return was submitted in May,

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By Andy Reeves
02nd Apr 2014 11:41

Contract law

Did you charge a fee (i.e. Was there consideration) to your "friend"? I seem to recall from my ACCA studies long ago that, unless there is consideration, there is no contact between the two of you, as the four elements required are incomplete. If that is the case, then the "friend" cannot look to you for compensation for failing to complete your obligations under the non-existent contract. I also recall this being reiterated on a CPD course a few years ago, when it was stressed that it was better to do a job for free than to charge a nominal fee of say £20 and carry the risk of action against you. Also, the usual question: did you have an engagement letter in place? I suspect not as you do not appear to be in practice.

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By anne in basingstoke
02nd Apr 2014 12:23

A few comments about your unfortunate situation:

Firstly, the client is actually responsible for filing their own return on time.

Secondly, was he aware that you are not professionally qualified?

Thirdly, did you read the notice on the front of the tax return that says you can only file a paper tax return if you do so by 31 October?  If not, rather foolish.  If so, why did you do it? BUT, you can assume the client knew this, too, as he passed the return to you and also he signed the paper return which you told him (did you?) you were going to post to HMRC.  So, he is as guilty as you.  If you value the friendship and your reputation, pay up.  If you don't mind what he says or does, don't pay but give him his money back.

Fourthly, if HMRC did, indeed, ask you to send them a copy of the return you say you filed, this seems to me to be giving the impression that a paper return is good enough, after all.  You could then make an argument that penalties should at least not run beyond the date you sent the paper copy. Furthermore, if you go to tribunal (or in your appeal) you could suggest that you should be able to rely on the PO / HMRC to receive the return when sent in May and that penalties should not run beyond that date.

Fifthly, do learn the lesson not to take on jobs for which you are not qualified, nor clients that are already behind (unless you charge them double the fees) as they are a real hassle.

If submitting a paper return near the deadline, I have always done special delivery and checked the evidence.  However, with the advent of online filing, this has become the surer and better way to know delivery has happened  (remember to get a signed paper copy with the same HMRC unique number on it as the copy you will then file online, i.e, be careful re evidence that client approved return before filing).

 

All the best!

Anne

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By kirstiej
02nd Apr 2014 12:46

I think you would have difficulty claiming that his penalties are your business cost on your sa, particularly as a significant proportion of them will have been incurred before you became involved.

Hmrc penalties and interest are not tax deductible - it would look as though you were transferring his cost to your business.

Also what were you being paid to do - fill in a bit of paper or give tax advice? If the former I wouldn't expect you to have knowledge of the penalty system.

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By lionofludesch
02nd Apr 2014 13:02

Is it a penalty ?

If the OP were to accept liability, would he be paying penalties at that stage ?

Surely, his payment would be compensating a client for a mistake he (the OP) had made. That would seem to be a business expense to me.

Setting aside the issue of whether there's a contract between the parties, which is a totally separate matter ....................

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By lionofludesch
02nd Apr 2014 13:07

Friends and Family

Some of you seem to need to invest in upgrades by the look of it.

My dad was the best client I ever signed up.  Never argued, did as he was told, paid up on presentation of his bill.  The only time I had to wait was when his executors took over his affairs ........

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By kirstiej
02nd Apr 2014 13:18

Business expense
Depends on the rest of the business set up i suppose but - "my mate incurred £1000 in penalties - I charged him £100 for a tax return and am setting my £900 loss against previous years".

Sounds a bit leg pulling to me.

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By lionofludesch
02nd Apr 2014 13:26

Maybe

But it would be the purpose of the payment that the OP made.  He hasn't incurred any HMRC penalties.

And because he submitted the return on paper, that pretty much crystalised £1200 in penalties for the client immediately (depending on exactly when it was submitted).  If he'd submitted electronically, the penalties would have been a lot less.

It's not as clear-cut as you suggest.

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By kirstiej
02nd Apr 2014 13:41

It's never clear cut without knowing the facts.

However, with no contract and assuming that the OP is not qualified and represented themself as somebody who could fill in a form that somebody handed them rather than a tax expert or accountant, I think it would be difficult to argue that they were responsible.

Why did they fill in a paper form? Because they were given a paper form. The friend was equally able to access information about self assessment deadlines.

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By lionofludesch
02nd Apr 2014 15:16

Let us say this

I rather hope that SimonaC doesn't get stuck with reimbursing this penalty.

But if so, I'd cheerfully claim it as a deduction and I'd be confident of warding off any challenge by HMRC.   No penalty has been imposed on SimonaC - therefore, no add-back needed.

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By SimonaC
02nd Apr 2014 17:01

Hi all,

Thank you for responses.

I will give you dates & more info, as I think some of you didn't get the full picture, because you didn't have them.

My friend/client had selfemployment activity during 2011-2012. By January 2013 he didn't get a SA letter and he contacted HMRC to ask why/when he should get one.

They send him a SA form in February 2013 and being on paper, he read about it online that must be submitted by October 31st. In May 2013 they imposed £100 penalty. He paid the penalty and it is then when he came to me to help with the submission. I did it for £100 charge and post it for him as he was in a rush (had to go abroad).

He called HMRC on his return to ask if they received it and when to expect answer to his appeal - he appealled against the 100 penalty. He was told to expect a reply after 15th July. He then forgot about it and they never replied. In Sept2013 he was sent a penalty letter for £600.When he contacted HMRC and explained the situation he was told to sent copies of his return if he has them. He did. Another letter came at end of October2013 with £1,200 penalty saying that they can not accept paper copies and he must do it online. He appealed against all these decissions and was told that until he submits his return they can't reply to his appeal.

He then registered online and was able to submit it early Dec2013.

He received reply to his appeal in Jan14 saying that they can not decide based on all these facts and he either can ask for another HMRC officer review or go to tribunal. (they gave him a court case example still in the tribunal). he requested another review and now he received it with a decision that his appeal is not succesful.

I offered him support during these months foc and it is now after he received last decision when he turned against me and asking to pay his trouble.

This is the full story.

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By lionofludesch
02nd Apr 2014 18:05

Your original question was can you claim it against your SA if you pay this penalty for your friend.

My answer is still yes, you can.

 

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By ACDWebb
02nd Apr 2014 21:11

So by the sounds of it

he was not required to make a return for 11/12 in the normal run on 6 April 2012.

HMRC eventually required a return in February 2013, which if this was the first time of issue would have given him three months to submit on paper or online (lets ignore the possible failure to notify penalty which is a different issue we do not have enough information to decide on).

He did nothing about the return issued in Feb 13 until the filing deadline of May 13 passed and he got a penalty.

You then completed the return and submitted on paper, but on the face of it not within three months of the apparent due date of May 13.

There then seems to be a major crossing of wires & misunderstanding between the client and HMRC.

He rang HMRC (when?) and said when will you deal with my appeal

They didn't say they had not received his return at the time, just that they would get around to answering in July.

He then forgot about it and they never replied.

Sept 13 they issue a further penalty and he rings again

They effectively said 'we've lost it send us a copy'

He did as asked, possibly without a covering letter explaining why he was sending copies, possibly with and it got ignored.

Someone else in HMRC received the copy returns, assumed it was an original submission, and sent it back saying they could not accept copies and he must submit online.

He eventually registered and submitted online and has been stiffed with the full range of penalties on the basis that that electronic submission was the first and only return submitted for 2011-12.

You need to go back to your original submission and try to find any proof and as much detail as you might have to prove that the original was sent and either lost in the post, or by HMRC. For example where did he get the copy of the return that he posted as requested in Sept/Oct 13 and what does that show as to date of signature etc?

You/he should write to HMRC setting out the full trail of what occurred and ask for a further review by another officer.

If the above is a reasonable reflection of what occurred then his appeal against all the penalties, bar the initial £100 which looks to be due, is on the grounds that he had a reasonable belief that the return had been submitted by you as his agent in May 2013. That it had apparently not been received did not become apparent until Sept 13 and due to mishandling of calls and follow up correspondence by HMRC Enquiry Centre the issue dragged on to the final electronic submission.

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By SimonaC
04th Apr 2014 23:03

SA penalties

Hi all , I called HMRC today to explain the situation again and try to make them understand. I was told that indeed  he was asked back in Sept113  to submit copies of paper return (the one lost) to prove initial submission in June13, but they were in position to not accept it because didn't have an original signature of my client. The HMRC representative told me that he should've  sign the copies and post. But he was not told / explained this way at all. Is this for real?  HMRC rep advised me to write to them again.....my experience with HMRC so far not just on this case , but with some personal maters as well made me doubting their answers. You tend to get a different one from each HMRC rep you are talking to....

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By ACDWebb
07th Apr 2014 11:38

Why would a copy return have an original signature on it?

Still let's hope that this time you make more progress.

That you get a different person with a different view each time can only be frustrating ... 'it's not like it was in my day' etc., etc..

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