The filing date for the 2011 tax return is 31 January 2012. If the return is late, penalties will apply as follows:

• an initial £100 fixed penalty – even if no tax is due or all the tax is paid on time
• after 3 months, daily penalties of £10 per day, up to a maximum of £900
• after 6 months, a further penalty of 5% of the tax due or £300, whichever is greater
• after 12 months, another 5% or £300 charge, whichever is greater. In serious cases, the penalty after 12 months can be up to 100% of the tax due.

This means that if you do not send in your 2011 tax return until 30 September 2012, you will have penalties to pay of £1,300 even if no tax is payable.

In addition there will be late payment surcharges as outlined below.

Do not forget to pay your tax bill on 31 January 2012.

Late paid tax will be subject to an interest charge of 3%. For example, if you pay a tax bill of £2,000 ten days late, then you will owe interest of £2,000 x 3% x 10/365 = £1.64.

Beware of late payment surcharges if you pay late tax due from the 2010/11 tax year as surcharges apply.

These are 5% of the tax unpaid at:

• 30 days
• 6 months, and
• 12 months

Interest is charged in addition to these penalties.

For example, if you owe tax of £10,000 from 2010/11 due on 31 January 2012 which is not paid until 1 August 2012, you will owe:

Tax £10,000
Initial surcharge £10,000 x 5% = £500
Second surcharge £10,000 x 5% = £500
Late payment interest £10,000 x 3% = £300 x 182/365 = £149.58
Total owing £11,149.58

Details on how to pay tax can be found by clicking on: http://www.hmrc.gov.uk/payinghmrc/selfassessment.htm

Tax can also be paid over the phone using your debit card. Call 0845 305 1000 and give details of your card number, tax reference and the amount you wish to pay.

Further details can be found at www.hmrc.gov.uk/sa/deadlines-penalties.htm

If you have still to file your tax return, then please read on. You need to act quickly to avoid having to pay the following penalties.

The filing date for the 2011 tax return is 31 January 2012. If the return is late, penalties will apply as follows:

• an initial £100 fixed penalty - even if no tax is due or all the tax is paid on time
• after 3 months, daily penalties of £10 per day, up to a maximum of £900
• after 6 months, a further penalty of 5% of the tax due or £300, whichever is greater
• after 12 months, another 5% or £300 charge, whichever is greater. In serious cases, the penalty after 12 months can be up to 100% of the tax due.

This means that if you do not send in your 2011 tax return until 30 September 2012, you will have penalties to pay of £1,300 even if no tax is payable.

New penalties also apply for paying late. These are 5% of the tax unpaid at:

• 30 days
• 6 months, and
• 12 months

Interest is charged in addition to these penalties.

Further details can be found at www.hmrc.gov.uk/sa/deadlines-penalties.htm

It may be possible to avoid or reduce this payment.  Here’s how.

1. If you have done your tax return to 5 April 2011 and the actual liability is less than the previous year.

2. You do not need to make a POA at all if the tax liability on the 5 April 2010 tax return was less than £1,000, or if at least 80% of the tax due for 2009/10 was paid at source (e.g. under PAYE or tax deducted from interest paid to you by banks).

3. If you have not done your 5 April 2011 tax return but expect the liability to be less, you can ask the tax man to reduce the POAs. Be warned: if it turns out you should have paid the original amounts after all, you will have to pay interest and possibly even penalties if the tax man thinks you didn’t have a good reason to reduce the payments!

4. It is too late to make pension contributions for the year to 5 April 2011, but if you have made a loss in a business since 5 April 2011, you may be able to carry those losses back to the 2011 tax year and reduce the tax liability and payments. Note that this applies only to sole trader and partnerships (including LLPs), NOT limited companies.

Please see the notes below to find out more about the rules for payments on account. For general tax-saving tips and ideas have a look at Andy Scott’s top 21 tax tips

If you’d like to speak to me or one of the team at K&H about this or anything else, please call 0118 923 5800 or email mail@kandh.co.uk

Notes

• The tax rules state that you must pay an estimate of your tax liability for the year to 5 April 2010. Half is payable on 31 January 2011 and the other half on 31 July 2011.

• The total amount you have to pay is equal to the actual liability for the year to 5 April 2010, although if the total liability for that year was less than £1,000, you don’t have to make any POAs.

• Once you have worked out your actual tax liability to 5 April 2011, you can get an immediate refund of any overpayment (with interest). Any balance payable over and above the POAs does not need to be paid until 31 January 2012.

• The POA applies only to income tax, not to any Capital Gains tax.

• If you have done your 5 April 2010 tax return and you are due to make a POA on 31 July 2011, you should have been sent a payment reminder with a payslip by HMRC in late June/early July.

• Payment can be made to HMRC by direct debit, direct payment by internet or phone, at your bank, Post Office or by post. Cheques should be made payable to ‘HM Revenue & Customs Only’ and you will need to know your UTR reference for the payment.  Further payment information can be found HERE

• If you pay late, you will be charged interest and (if more than 30 days late) ‘tax-geared’ penalties starting at 5% of the tax due.

Changes to Annual Returns (P35 forms) and starter and leaver forms
• From April 2011, employers with fewer than 50 employees must send starter and leaver forms – P45s, P46s and similar pension information – online to HMRC.

• Automatic penalties will apply to all P35 forms filed after 19 May. The ‘extra time concession’ has been withdrawn.

•  Automatic penalties will be issued if you try to file a paper P35 - all forms must be filed online.

Other potential pitfalls and penalties
HMRC will also be issuing PAYE penalties this spring for the first time in two key areas:

•  Automatic penalty notices were sent out in April to employers with 50 or more employees who had not filed starter and leaver forms online to HMRC.

The first penalties will apply for the three-month period to 5 April 2011, with further penalties being issued on a quarterly basis.

• From May this year, HMRC will start sending out penalties for late payment of PAYE. Employers will be liable for a penalty if they haven’t made PAYE payments on time, and in full, from April 2011. The size of the penalty will depend on the amounts paid late and the total number of late payments made. Penalties will be charged after the tax year-end.

Further information is available on the changes from the HMRC website at www.hmrc.gov.uk/paye or via its Employer Helpline on 08457 143 143.

HMRC’s version of Hal churns out penalty notices without any apparent human intervention, so this is extremely efficient, compared with most of what HMRC does. The level of penalties and areas of tax that they apply to is growing, with monthly PAYE bills being the latest addition to their fine farming.

Reasonable excuse – what HMRC says

One of the few ways of avoiding having to pay these penalties is by making a ‘reasonable excuse’ claim. HMRC says that this is only available when there is “some unforeseen and exceptional event beyond your control” and they give three examples:

• When HMRC or its computer Hal goes wrong or gives out bad advice
• When your computer fails while submitting a return online
• Serious illness

They say that not having enough money to pay or relying on someone else who lets you down does NOT count.

Reasonable excuse – the reality

However, the outcome of tribunal and court cases suggest that, in fact, the following situations can be accepted as an excuse to avoid penalties:

• Lack of funds caused by non-payment by a customer who was a local council
• An accountant failing to advise on special rules relating to a film investment
• Fire or major theft

Some more unexpected tribunal successes were:

• Where the introduction of the national minimum wage left a charity short of cash
• When a cheque bounced because the bank manager fell ill before agreeing a new overdraft
• Where a tobacconist had no cash to pay because of smugglers
• When the taxpayer’s car crashed on the way to the bank to pay the tax, and the forms got lost under the seat of the damaged car!

Remember that, whatever your excuse, you will need to prove it (e.g. keep screen shots of error messages from failed online submissions etc.) and there are time limits for appeals.

The lesson from this is that it is usually worth appealing against any fines, just in case.

If you have any questions about this, please let Andy Scott or me know, or if you have your own story about a reasonable excuse claim, please post a comment.

Many businesses may have paid their PAYE late for cash flow reasons but the government has now introduced new PAYE penalties.

You may now have to pay a penalty if you pay your PAYE, NICS or CIS payments late.

The penalty rules applied from 18 May 2010.

All employers are subject to the new penalties, including people employing domestic staff, nannies or care workers in their own home.

The good news is that no penalty is due on the first late payment and the Revenue should then issue a warning letter.

The penalty for the second and subsequent late payments increases from 1% to 4% of the amount due in the same tax year.

Additional penalties of 5% are due:

• for payments six months late
• for payments 12 months late

Getting behind with PAYE can be very expensive.

You can appeal against a penalty if you have a ‘reasonable excuse’ for not making the payment on time. The Revenue is unlikely to accept lack of funds as a reasonable excuse unless you can prove that this was due to something beyond your normal control such as an exceptional bad debt.

Quite correctly, he never fails to mention that penalties may be charged if you are late. But he doesn’t tell you the full story. Firstly, here are the rules for filing tax returns and the penalties for being late:

• Returns must be filed online by 31 January
• The balance of any tax due for 2008/09 must be paid by 31 January 2010. In addition, a payment on account of tax for 2009/10 may be due by 31 January 2010
• A maximum £100 penalty will be charged for late returns. However, if the tax due is less than this, the penalty is capped at the amount of tax outstanding.

Further details are available on the Revenue website.

BUT here are some ways that you can avoid having to pay fines:

1. Pay the tax due, or an estimate, before 31 January. Even if the tax return itself is late, there will be no fine if the tax is paid by the 31st.
2. Submit a tax return with estimated figures on it. You can resubmit at a later date with the right amounts and pay no fine.
3. Come up with a ‘reasonable excuse’ for being late; e.g. something out of your control that has meant you could not get the tax return in on time, like your house (containing the relevant papers) burning down, your computer hard disc failing. Whatever you say must, of course, be true!

If you would like to discuss any of the above, or to find out more, please get in touch with Susan Kemish on 0118 9235811 or your usual contact at K&H.