Staying on top of tax regulations and guidelines is crucial for anyone running their own business. But what happens if you forget about your tax bill, or you pay it after the deadline? This article will look at the following areas:

  • Reasons for tax penalties
  • Reasonable excuses for appealing tax penalties
  • How to appeal a tax penalty

Reasons for tax penalties

There are a few reasons why you might find yourself at the receiving end of a tax penalty. You may already know why it’s happened, but if you aren’t sure why you have one, then here are some examples:

  • There were errors or you provided inaccurate information on your tax return
  • You filed your tax return late, after the deadline
  • You paid your final tax bill late
  • You have failed to provide proof, or have kept inadequate records for tax purposes

To avoid any tax penalties from HMRC for lateness, you need to be registered to complete a self-assessment (for self-employed people who manage their own taxes)by 5 October each year. The deadline for filing your tax return is 31st October for paper forms, and the 31st January for online returns. You must have paid your tax bill in full by the 31st January to meet the deadline. 

In early 2021 HMRC announced that they wouldn’t be issuing any late penalties as long as the tax return is still filed before the 28th February each year, giving self-employed taxpayers an extra month to file — however, the deadline for paying the tax bill is still the 31st January, so if you do file your return late you’ll be charged interest from the 1st February on the tax bill total you owe.

Reasonable excuses for appealing tax penalties

There are circumstances where it’s understandable that mistakes are made or that returns are filed late, and HMRC acknowledges this, calling certain circumstances a ‘reasonable excuse’ for filing or late/incorrect payment. 

So if you are hit with a penalty, and one of the following extenuating circumstances applies to your situation, you may be able to appeal:

  • Your partner or close family member died shortly before the deadline for filing or payment date.
  • You had an unexpected hospital stay which meant you couldn’t access your records and meet your tax obligations.
  • You suffered from a serious or life-threatening illness or accident.
  • The software you use to manage your accounting failed just before the deadline, despite you maintaining the records in it (meaning the failure wasn’t due to your neglect of it, or not updating it).
  • HMRC’s self-assessment portal has technical issues, preventing you from submitting the return on time.
  • Fire, flood or theft stopped you from submitting or paying on time.
  • Your delay in filing or paying is in relation to a disability.

There are other reasons that will pass with HMRC as a reasonable excuse, and you can find more detail on those here. Every appeal is investigated on an individual basis, because HMRC wants to see that you took reasonable steps and care to meet your tax obligations, but were prevented from doing so by something out of your control.

HMRC has also announced that they will consider the coronavirus pandemic as a reasonable excuse for filing a self-assessment late. In order to use this as a basis for appeal, you will have to prove that you were impacted by the pandemic and lockdown measures, using documentation of your business being closed to the public, or letters asking you to shield or isolate. As with other reasonable excuses, the coronavirus pandemic appeals will also be considered on a case by case basis to ensure you did everything you could to meet your tax responsibilities, but were stopped by measures outside your control.

How to appeal a tax penalty

The appeal process differs on the type of penalty your business has received. 

You may have received one of the following:

  • Late VAT or Corporation Tax return penalty
  • Self-assessment late filing penalty
  • A PAYE penalty, if you are operating through a limited company

For every appeal you will need to log into your HMRC account (either the self-assessment platform or your PAYE for employers portal) and get the details of the date you submitted a return and how much and when you paid the bill. 

There are separate paper forms for each type of appeal. First find the relevant form for your appeal situation here. You will then need to fill in the relevant form and send it to the correct address which is listed on the following HMRC page.

You will need to appeal the tax penalty within 30 days of the date on your penalty notice. The exception is if your notice was served after February 2020, and you were affected by the coronavirus pandemic, then HMRC is allowing up to three months extra for you to appeal a decision.

Once you’ve submitted the appeal, you will hear back within 45 days of HMRC receiving your appeal, or they will let you know if the review process will take longer. HMRC will then write to tell you the result of your appeal and their decision.

If you disagree with HMRC’s decision you can make further appeals to the tax tribunal, which is an independent body that will examine evidence provided by both you and the taxman. If this is the route you want to take you must do so within 30 days of receiving the decision notice.

Make managing your taxes simple with Countingup

The Countingup app and business current account comes with free built-in accounting software that automates the time-consuming aspects of bookkeeping and taxes.  It allows you to calculate tax estimates so that you can keep on top of your tax bills and expenses effectively. You can also view real-time insights into your business’ finances and create customisable invoices in instants. 
Find out more here.

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