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HMRC internal manual

Self Assessment: the legal framework

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HM Revenue & Customs
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Self Assessment Tax Returns: sanctions against a failure to file a Tax Return: penalties for failure to file a Tax Return on time: returns for 2010-11 onwards

Background

This page describes the financial penalties for failing to file a tax return on time for the tax year 2010-11 and any subsequent tax year. The relevant legislation is in Schedule 55 Finance Act 2009.

SALF208 describes the penalties for failing to file a tax return on time for the tax year 2009-10 and any earlier tax year. The rules set out in SALF208 apply to all returns for 2009-10 and earlier years irrespective of when the notice to make the return was issued.

Schedule 55 FA 2009

Penalties charged automatically

Paragraph 3 - Initial fixed penalty - one day late

A person who fails to file their return by the filing date is liable to an initial fixed penalty of £100 on the penalty date. The penalty date is the day after the filing date (paragraph 1(4)).

Paragraph 4 - Daily penalties - three months late

Daily penalties apply if the failure continues after the end of the period of three months beginning with the penalty date. The legislation provides for HMRC to decide that a daily penalty should be payable and to give notice to the taxpayer specifying the date from which the penalty is payable. The daily penalty is £10 for each day that the failure continues during the period of 90 days beginning with the date specified in the notice given to the taxpayer.

Paragraphs 5 and 6 - Tax-geared penalties - six months and 12 months late

If the failure continues six months after the penalty date, there is a further penalty based on a percentage of the tax liability that would have been shown in the return (paragraph 5). The penalty is the greater of:

  • 5% of the tax liability which would have been shown in the return, and
  • £300.

The same penalty will apply if the failure continues 12 months after the penalty date (paragraph 6). In certain circumstances, the paragraph 6 penalty at 12 months will be higher (see heading Behavioural Penalty).

All penalties

A person becomes liable to the daily penalties or further penalties even if they have not been charged some or all of the previous penalties. For example, a person becomes liable to the penalty after 6 months even if they have not been charged daily penalties.

Penalties charged automatically - examples

The following examples reflect the different filing and penalty dates for electronic (online) and non-electronic (paper) returns.

Online return - one day late

The filing date for Emma’s 2011-12 return is 31 January 2013. Emma files her return on the day after the filing date - 1 February 2013. This is the penalty date and Emma is liable to the initial fixed penalty of £100.

Online return - more than 12 months late

The filing date for Jonathan’s 2012-13 return is 31 January 2014. Jonathan files his return on 3 February 2015. His return shows a liability of £3,000. Jonathan is liable to the following penalties:

  • the initial fixed penalty of £100 on 1 February 2014
  • daily penalties of £900 (90 days at £10 for each day from 1 May to 29 July 2014)
  • a tax-geared penalty of £300 on 1 August 2014 (£300 is greater than 5% of £3,000)
  • a tax-geared penalty of £300 on 1 February 2015 (£300 is greater than 5% of £3,000)

Paper return - one day late

The paper filing date for Sophie’s 2011-12 return is 31 October 2012. Sophie files a paper return on the day after the paper filing date - 1 November 2012. This is the penalty date and Sophie is liable to the initial fixed penalty of £100.

Paper return - more than 12 months late

The paper filing date for Ben’s 2012-13 return is 31 October 2013. Ben files a paper return on 3 November 2014. His return shows a liability of £3,000. He is liable to the following penalties:

  • the initial fixed penalty of £100 on 1 November 2013
  • daily penalties of £900 (90 days at £10 for each day from 1 February 2014 to 1 May 2014)
  • a tax-geared penalty of £300 on 1 May 2014 (£300 is greater than 5% of £3,000)
  • a tax-geared penalty of £300 on 1 November 2014 (£300 is greater than 5% of £3,000)

Behavioural Penalty - 12 months late

Paragraph 6

The percentage of the tax liability used to calculate the paragraph 6 penalty can be increased to 70% where by failing to make the return a person deliberately withholds information that would enable or assist HMRC to assess their correct tax liability. The percentage can be increased further to 100% if the withholding of the information is concealed.

This is the only penalty for failing to file a return which considers the person’s behaviour that led to the failure. There is further guidance on the behavioural penalty in the Compliance Handbook.

Special Reduction

Paragraph 16

If HMRC think it right because of “special circumstances”, they may reduce any late filing penalty. For this purpose, a special circumstance does not include ability to pay or the fact that a potential loss of revenue from one taxpayer is balanced by a potential overpayment from another.

For guidance on special reduction, see the Compliance Handbook.

Assessment of late filing penalty

Paragraph 18

An officer of the Board is required to serve a notice of assessment stating the period in respect of which the penalty is assessed. The assessment is to be treated in the same way as an assessment to tax. A late filing penalty must be paid within 30 days of the date on which the notice of assessment of the penalty is issued. Late payment interest will run from the end of the 30 day payment period until payment.

Right of appeal against penalty assessments

Paragraph 20

There is a right of appeal against HMRC’s decision that a penalty is payable and / or against the amount of the penalty payable.

Paragraph 21

There is no obligation to pay the penalty before an appeal against the assessment of the penalty is determined.

Paragraph 22

On appeal, the First-tier Tribunal may affirm or cancel HMRC’s decision or substitute for HMRC’s decision another decision that HMRC had power to make. This includes consideration of HMRC’s decision on special reduction.

Reasonable excuse

Paragraph 23

Under paragraph 23, liability to a penalty for failing to make a return does not arise where the taxpayer satisfies HMRC or (on appeal) the First-tier Tribunal or Upper Tribunal, that there is a reasonable excuse for the failure. For this purpose:

  • an insufficiency of funds is not a reasonable excuse unless attributable to events outside the taxpayer’s control
  • reliance on any other person to do anything is not a reasonable excuse unless the taxpayer took reasonable care to avoid the failure
  • where the taxpayer had a reasonable excuse but that excuse has ceased, they are treated as having continued to have the excuse if the failure is remedied without unreasonable delay after the excuse ceased