Charging penalties: introduction: penalties for failure to file returns on time - FA09/Sch55: overview of automatic penalties
A person will be liable to a penalty when they fail to file their return on time unless they
- have a reasonable excuse for not doing so, and
- file the return without unreasonable delay after the excuse ends, see CH61500+.
Most penalties for failure to file returns on time are charged automatically.
They are assessed by the Self Assessment (Income Tax (IT) and Capital Gains Tax (CGT)) system, the Construction Industry Scheme system (CISR) and the Penalty Appeals System (PAS) for PAYE Real Time Information (RTI) returns.
A person who fails to file an Income Tax or CIS300 return by the due date is assessed an initial fixed penalty of £100 on the day after the filing date - the penalty date.
An employer who, during a tax month, fails to file one or more PAYE RTI returns by the due date is liable to a penalty. The amount of the penalty depends on the number of employees in the PAYE Scheme, see CH62840 and CH401255.
Penalties are assessed under different models for
- occasional returns and annual returns for periods of 6 months or more. Currently the legislation applies to returns required for
- Income Tax
- Capital Gains Tax
- Bank Payroll Tax
- Registered Pension Scheme returns
- Annual Tax on Enveloped Dwellings
- CIS returns
- returns for periods between 2 and 6 months - Machine Games Duty
- PAYE RTI returns.
The penalty models include fixed and tax-geared penalties. See CH62020 for an overview of the penalty models.
Under models 1 and 2, a minimum penalty of £300 is due when the return is 6 months late. If the failure continues after 12 months another minimum penalty of £300 is assessed.
These penalties are automatically recalculated at 5% of the tax liability and further penalty assessments are issued when a determination is made or a return is received or amended.
Where there is no liability because a CIS return only relates to persons registered for gross payment, penalties calculated as a percentage of the tax liability after 6 or 12 months are not applicable and the person is liable to minimum fixed amount penalties, see CH62500.
When a person files their first CIS return that is due after October 2011, but failed to file earlier CIS returns, there are no minimum penalties that apply after 6 and 12 months, see CH62520.
If you need to know more about automatic penalties, see SAM61200 for guidance on the IT/CGT automatic penalties and CISR65000 for guidance on the CIS automatic penalties.
PAYE RTI returns
For PAYE RTI returns, only the initial late filing penalty is automated.
Where the failure to make a return on or before the filing date continues beyond 3 months, beginning with the day after the filing date, and the employer has not reported all of the outstanding payments on a later return, HMRC may charge the employer a further penalty. The penalty is 5% of the amount of PAYE tax and Class 1 National Insurance Contributions that would have been shown on the missing return (but not Student Loan Deductions). There are no deductions for the type or quality of disclosure, see CH62880 and CH401260.
(This content has been withheld because of exemptions in the Freedom of Information Act 2000)
This penalty is not automated and will normally be considered by compliance officers during a compliance check. Where it is decided to charge a penalty it will have to be issued manually by formal assessment or included in a contract settlement.
HMRC has the discretion to reduce any penalty if they think that it is right to do so because of special circumstances (paragraph 15 of Schedule 55).
For automated penalties you must consider special reduction in all cases where an appeal is received asking for the penalty to be reconsidered, whether or not the employer specifically requests special reductions, see CH170000.