Clock ticking as many face the taxman’s anger for late returns
AS THE clock ticks down for the growing army of Scots in the self-assessment system to file their returns, experts warn that many risk incurring the wrath of a taxman in the mood for a crackdown.
The 31 January online returns deadline is an annual source of stress for millions. Not only are more people being dragged into self-assessment for the first time – some 10 million people now complete their own tax returns – but the cost of not getting it done on time is increasinglyexpensive.
Little wonder that a record number of people filed their returns over Christmas, including 14,300 on Christmas Eve and 1,548 the following day, rather than leave the task any longer.
The seasonal tax filing purge was no doubt influenced partly by the pre-Christmas coverage of the multinational companies failing to pay their fair share of UK tax.
However, while HM Revenue & Customs (HMRC) has come under fire for being too lenient towards big name corporates, it is taking a much harder attitude towards the humble individual taxpayer.
Last year, it raked in more than £950 million in fines from self-assessment taxpayers who missed the January deadline for their 2010-11 tax returns. That’s because of a fines system that sees tardy taxpayers hit with penalties that escalate by the day.
You can be hit by late filing penalties even if you don’t owe tax for the year.
“The fixed £100 penalty will be charged on filing a late return regardless of the amount of tax under or overpaid,” said Neil Whyte, tax partner at PKF accountant and business adviser.
“The longer you delay, the worse it gets. If the return is not filed before 1 May, HMRC can start to charge penalties at £10 a day (for up to 90 days) and there are yet more penalties for longer delays.”
If you still haven’t sent in your returns after six months the fines mount up – you have to pay the higher of £300 or 5 per cent of the tax due, whichever is higher.
If you’re a year late you get another fine of whichever is higher of £500 or the tax due.
You could end up with fines totalling £1,600 if you need to submit a return for the tax year ending last April but fail to do so by 1 February, 2014.
“If there is tax outstanding in such a situation, you could end up paying twice the amount due because the maximum penalty HMRC can charge is the higher of £1,600 or 100 per cent of the tax due,” Whyte pointed out.
Some fines are dished out wrongly, yet the onus remains on individuals to prove as much.
These days HMRC’s penalty notices are processed electronically, on the basis of computer records. Incorrect records can result in incorrect fines, whether it’s HMRC’s fault or yours for not keeping it up-to-date with changes in your circumstances.
“Clamping down on serial defaulters and very late payers is part of the Treasury’s broader strategy of collecting more of the tax that it is owed,” said Whyte.
So what can you do to ensure you get your returns in on time? The obvious step is to get them done as soon as possible and avoid the last-minute rush.
If you haven’t filed online before you’ll need to register with HMRC – at https://online.hmrc.gov.uk/registration/individual – and receive an activation code. This could take up to a week to arrive (by post), so don’t leave it to the final days of January to register.
One common mistake made by those who can’t afford to pay their tax bill by 31 January is to delay submitting their return until they can.
The penalty system now in place means that will merely add to the amount owed.
“The best thing to do is send in a return and call HMRC’s payment support service to ask about staged payments,” Whyte suggested.
“You will still have to pay interest but you may be able to avoid the late payment penalties.”
That does involve getting in touch directly with HMRC, however. Easier said than done, judging by a recent report on the service.
It takes an average of four minutes to get through to an operator, according to National Audit Office figures showing that millions of calls go unanswered every year.
A growing problem, according to Malcolm Rust, partner at Shepherd & Wedderburn in Edinburgh, is that dealing directly with HMRC can be a frustrating experience for individual taxpayers.
“A big problem we see from our experience and that of unrepresented taxpayers is a steady erosion of the quality of service from HMRC and the way issues are dealt with,” he said.
“Tax agents have a dedicated helpline, putting represented taxpayers at a distinct advantage here.
“HMRC will not assist individuals who inadvertently use the agent line.”
HMRC is also notoriously reluctant to back down when it has fined someone unfairly. It will only accept what it deems a “reasonable excuse” for late returns. It’s definition of what constitutes a reasonable excuse may be quite different to yours, however.
Officially, a reasonable excuse means that an “unforeseeable or unusual event beyond your control has prevented you from filing your return on time”.
For example, it may let you off if you’ve been prevented by illness or its own IT failure from filing your return on time. It may also be lenient if you’ve registered in plenty of time but not received the activation code you need.
The good news is that if you do feel you’ve been penalised without good reason, you can appeal. If you’ve been sent a penalty notice you should also have received HMRC form SA370, with which you can appeal. If not, you can still write to HMRC putting the case against the fine, as long as you do so within 30 days of the penalty notice.
FIVE WAYS TO PREPARE
1 Allow plenty of time – late returns will incur fines, as the main article on this page explains. Remember that if you haven’t registered to file online before, you’ll need an activation code from HM Revenue & Customs, which could take a week to arrive. You’ll need your unique taxpayer reference (UTR) and your national insurance number or postcode when you request your activation pin.
2 Double-check everything – make sure you keep HMRC up-to-date with any changes to your circumstances and go through your return in detail. Any mistakes could result in paying too much tax and it’s not easy to get HMRC to review its decisions.
3 Get advice – a decent accountant can not only help you avoid making mistakes, but they will also know how to (legally) limit the amount of tax
you pay, such as by utilising exemptions or bringing forward previous losses.
4 Keep your documents – you’ll need them in the event of further enquiries from HM Revenue & Customs. Don’t throw away anything that’s relevant to your tax return. If you’re self-employed you should hold onto them for six years.
5 Get your reliefs – the supplementary pages on the return allow you to claim back things like tax relief on any gift aid donations you’ve made.
Thousands more Scots must fill in a tax return
Thousands more Scots will have to file their own tax returns through the self-assessment system after changes to child benefit that came into force earlier this month.
Households where at least one parent has taxable income above £50,000 will have their child benefit clawed back from them at a rate of 1 per cent of the benefit for each £100 of income between £50,000 and £60,00, under reforms that took effect on 7 January. Those on more than £60,000 lose all of their entitlement. Around 1.2 million people are affected by the new rules, most of whom will lose their child benefit entirely.
People earning between £50,000 and £60,000 can continue claiming their child benefit, with the payment being recovered through the self-assessment system in the form of the high income child benefit charge (Hicbc).
The onus is on the high earner to declare their liability to the charge.
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