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What is the worst HMRC can do if you pay late?
Tough penalties apply for both late returns AND late payment. Anyone who has been asked by HMRC to complete a self-assessment tax return for 2014/15 faces an automatic penalty of £100 if they didn’t submit it by midnight on 31 January 2016. They face further penalties if they didn’t pay what they owed by the same date.
HMRC will charge interest at 3% per annum, but, apart from pressing you for payment, they will not penalise you further until 2 March 2016. If any tax or Class 4 NI owing for 2014/15 is not paid by then, HMRC will add a flat rate penalty equal to 5% of the amount due. Please note that not everything payable on 31 January 2016 will necessarily relate to 2014/15; part of the amount will usually relate to a payment on account for 2015/16. Therefore, the 5% penalty will not apply to this, but the 3% per annum interest will.
Therefore, we would advise that, if you’re going to pay only part of your 31 January tax bill, you should ask HMRC to allocate it to the amount you owe for 2014/15, even in preference to anything you might owe for earlier years. Whatever you pay against 2014/15 will reduce both the interest charge and the flat-rate penalty.
You can ask HMRC to allocate payments however you wish, by phone or in writing, but always remember to keep a record of your request.
If you amend a tax return for 2014/15 so that extra tax is due, it isn’t payable until 30 days from the date of your amendment – and this may fall later than 31 January. For example, if you submitted your return on 1 December 2015 and amended it on 20 January 2016, the payment date for the extra tax is 19 February.
A reasonable excuse
If you pay your tax late, but have a reasonable excuse, HMRC will let you off the 5% penalty but not the 3% interest. But of course, It will only accept the most compelling of excuses, for example, an illness sufficiently serious that you were unable to arrange a payment. If you do have a good reason for paying late, but aren’t sure whether it’s good enough to meet HMRC’s criteria, it’s worth making an appeal anyway. The worst that can happen is that it won’t be accepted.
If you are in any doubt about your position in relation to this issue, please talk to your usual Thomas Croft contact as soon as possible.