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NEWTH TALKS TAX - OCTOBER: Tax writer of the year John Newth solves your tax questions

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2nd Oct 2006
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**For more of John Newth's exclusive contributions, visit the Newthwire archive***
https://www.accountingweb.co.uk/newthwire

Late filing penalties
Thomas Peterson posed some questions regarding late filing penalties in his
query of 17 August 2006. If a self-assessment tax return was submitted after 31 January but before 31 July, and the tax is paid after 31 July will the second £100 penalty still be due?

Thomas was aware that if the tax liability for the year is £20, then the first late filing penalty would be £20 and not £100, but does that mean that the second penalty is also reduced to 'nil', or would it also be £20?

Finally, if a taxpayer owed £120 at 31 January and then paid £50 in February, would the second penalty following 31 July be £70?

Euan MacLennan answered this query, and pointed out that penalties are imposed for not filing the tax return by 31 January and 31 July. Surcharges are imposed for not paying the balance of tax due for the previous year (payments on account of tax for the current year are ignored) by 28 February and 31 July. The penalties are reduced to the balance of tax not paid by 31 January if less. Accordingly in the current case:

  • Where the tax return is submitted between 1 February to 31 July but the tax is paid after 31 July, there will be no second late filing penalty, but a second 5% surcharge will be imposed.
  • In the case of the £20 tax liability the second penalty is 'nil'. It is the total penalty that is reduced to the balance of tax payable.
  • Where £120 is owed at 31 January, and £50 is paid in February, the first penalty will be £100, and the second penalty is £20 if the return in not filed by 31 July. Surcharges of 5% of £70 are each imposed if the tax is not paid by 28 February and 31 July respectively.
  • These answers underline the basic provisions regarding penalties and surcharges. The late filing penalty is £100 at 31 January, but is reduced to that figure if the balance of tax and NIC due at 31 January is less than £100. A further penalty of £100 is imposed if the return is not filed by 31 July, but may be replaced by daily penalties of up to £60 a day where the inspector makes application to the Commissioners for this purpose. Where the late filing extends to one year after normal filing date, then a mitigable penalty may be imposed of up to 100% of the unpaid tax. Interest is also imposed on penalties unpaid after 30 days.

    It should be recognised that these penalties are subject to a claim for reasonable excuse, details of which are beyond the scope of this short note. As regards filing of tax returns by 31 January, there is now a well-known concession whereby penalties are not imposed if the return is in the HMRC post box before 7.30am on 2 February.

    A 5% surcharge is imposed on late payment of the final income tax and Class 4 instalment as well as CGT due at 31 January. It is not imposed on corporation tax or interim payments of CT. The surcharge applies where payment of tax is 28 days in arrear. It should be noted that following the cases of Thompson v Minzly [2002] STC 450 and Bancroft & Bancroft v Crutchfield SpC 322 the payment must be in the hand of HMRC within 28 days. Receipt by HMRC on 29 February is too late and will trigger a surcharge. However, once again 'reasonable excuse' can be claimed.

    An additional 5% is imposed if the tax is still due at 31 July. Where tax has been amended, the amount is payable 30 days after amendment, and a 5% surcharge is imposed if the tax is not paid 28 days later. Interest is also imposed on unpaid surcharges.

    Newth Talks Tax - September

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    Replies (4)

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    avatar
    By User deleted
    10th Oct 2006 14:46

    You may be correct!
    I am willing to be corrected on the VAT claim for business mileage rates. My research in the HMRC Business Manual has not yielded the answer. Normally, of course, mileage rates can only be used where the business turnover is less than the VAT threshold.

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    By tickerbrum
    19th Oct 2006 10:56

    Mileage rates
    John, what do you mean by your comment "Normally, of course, mileage rates can only be used where the business turnover is less than the VAT threshold."? This seems to suggest that mileage rates cannot be used when turnover is above the VAT threshold(?)

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    By Dave Collier
    10th Oct 2006 12:34

    Surely you can claim VAT on 40p/mile?
    John, your article suggests you can't claim VAT on the 40p mileage allowance but HMRC does accept claims on part of it (10-15p) provided you have original petrol VAT receipts for at least the amount you are claiming. Well, they allow it for us anyway!

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    By User deleted
    17th Feb 2010 19:59

    VAT on mileage rates

    I think you are talking about two separate things here.

    If you pay mileage expenses to your employees you are allowed to reclaim a proportion for the VAT element provided you have original receipts to cover that amount.

    If you are self employed and below the VAT limit you can claim a mileage allowance in your accounts instead of actual expenses.

     

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