Tax penalty, and how to negotiate the best outcome when things go wrong

“A tax is a fine of doing well, a fine is a tax of doing wrong”

When you make a profit, the taxman has to take a cut which means you have to pay a fair share of tax. However, when you do submit your tax return to HMRC and something goes wrong you will then have to pay a fine.

Penalty for Missing the Tax Submission Deadline

If you submit a tax return late and miss the deadline the HMRC system will detect this and will automatically issue you a penalty. This means it is issued by default because they do not know the reason behind the late submission. The penalty depends on how late your tax return is submitted. If this is the case and you do have a reasonable excuse you are able to appeal the penalty. Having supporting evidence will maximise the chance and if they accept your reason they will cancel the penalty. If you cannot negotiate the penalty then you just have to pay the full amount.

Reasonable Excuse

There are some excuses that HMRC will accept:

  • Illness – If you are critically ill then you cannot fill in the tax return which may be accepted depending on the circumstances.
  • Documents Destroyed by Accidents – If you are self-employed and your business records have been destroyed by the accident then that is a reasonable excuse as well.
  • No UTR Number – Another common scenario is if you do not have your unique taxpayer reference number (UTR). The UTR has to be issued first in order to submit a tax return. If it has been issued late then that is not your fault.

Unreasonable Excuse

There are some common excuses that people give and are not seen as reasonable:

  • Being Busy – This is not a reasonable excuse because if you are busy you are able to ask for help. You can ask for help from an accountant as they can make sure everything is submitted on time.
  • Too Complicated – If you think it is too complicated for you then that is not acceptable too. There are a lot of experts out there and the tax authorities give you 9 months to prepare your tax return. Even if you do work with an accountant, the primary responsibility is yours. You need to chase up your accountant and if you do not receive a response you can always find another one.

The reasons stated can always be prevented and if you are in this position, HMRC will not accept these excuses.


Penalty of Errors or Mistakes in Tax Return

If you make any mistakes on a tax return or VAT return then there may be a penalty as well. The penalty amount will be based on the potential loss of revenue or how much tax you owe to HMRC. For example, if you are expected to pay £5000 tax within the year but you only declare that you have £4000 outstanding then the remaining £1000 is a potential loss of revenue. HMRC would charge a percentage of that £1000, the percentage will be determined by your behaviour and intention.

  • Because of a Lack of ‘Reasonable Care’ – This means every individual is expected to keep records in order to provide a complete and accurate return.HMRC expects you to check with your accountant, or HMRC, to confirm the correct position, if you are not sure. However, ‘reasonable care’ is different according to each individuals circumstance. For example, someone with straightforward tax affairs may only need a simple system of record keeping that is regularly updated. A large business is expected to have a more sophisticated system that is well-managed. The penalty is levied at 0% – 30% of the amount of tax due.
  • Deliberate – This occurs if you intentionally send incorrect information. The Penalty is 20% – 70% of the amount of tax due.
  • Deliberate and Concealed – If you intentionally send incorrect information and take further steps to hide the error. The penalty can be up to 100% of the amount of tax due.

The level of the penalty is linked to the reason why the error occurred. The more serious the reason, the higher the maximum penalty can be. HMRC can reduce the penalty if you help them to put things right.

Ways to Negotiate the Best Outcome

  1. Telling – If you find something out and you tell HMRC, they will consider what you have informed them whilst determining the next steps. You should make them aware of any issues even if they do not know.
  2. Helping – It is important to help HMRC understand your scenario and where it went wrong.
  3. Giving – Enable HMRC to have access to your records to help them investigate further. You need to show them your intention of wanting to put it right and that you want to pay back any outstanding tax. After doing so, HMRC will decide what penalty they will give you or they may decide to remove the penalty completely.


Have you found this article useful? For more insights and support from our penal of financial experts, please be free to request to join our exclusive Facebook group Tax Deductible Lifestyle Tribe.

For more details of the tax breaks and tailored advice, please get in touch with the author of this article!

Auto-Enrolment: Are you ready for the new item on your payroll cost?

A vast amount of big companies have been taking part in Auto-Enrolment for a couple of years now. In some countries like Australia, they already operate something similar to the Auto-Enrolment scheme, which has also been running for many years. The scheme encourages employers to take care of their employees and for people to put some money aside for their retirement.


Auto-Enrolment is related to your payroll costs. If you are running payroll at the moment you should be aware of the deductions such as income tax which is also known as PAYE or National insurance. However, if you have a pension contribution as well that is another deduction. Even though it is being deducted, the money paid into your pension scheme will still be yours afterwards which will be of benefit to you. The scheme is applicable for all businesses as long as you have employees.


What is Staging Date


If you are on a PAYE scheme, the pension regulator will pick up that information automatically and send you a letter confirming your staging date, which is the duty start date. Once the staging date commences you will need to automatically enrol the workers to the pension scheme.




If you are the only company director and have no other employees, the duty does not apply to you. You are able to voluntarily contribute to a personal pension as the decision is entirely up to you. Also, if you are company director but have other employees, you don’t have to enrol yourself into the pension scheme if you don’t want to.


2 Important Triggers to Take into Account


On the other hand, if you have employees then you have two factors you need to consider. The first is the earning trigger and the second is their age.


· Earning Trigger – Per month, the earning trigger is £833. If someone is earning £900 per month and they are aged 23 then at the company’s staging date, the employee needs to automatically be put into the pension scheme.


· Age Trigger – From the age of 16 to 74, an employee has the right to enrol into a pension scheme. But if the employee is between the age of 22 up until the state pension age then it is highly likely they have to be enrolled automatically. For the employees that are aged between 16 to 22, they have the choice of whether they want to be enrolled or not.


Until April 2018, employees contribute 1% of their pay cheque to a pension scheme and the employer contributes 1%, overall there is a 2% contribution but it will increase in later years.



Is the Staging Date the Start Date for The Pension Contribution?


If you are running the payroll monthly, the last working day of the month after your staging date is the day that you have to show the deduction on the payslip. For example, if your staging date is 1st August 2017, you would need to show the deduction on 31st August 2017 which is the last working day.


Where to Find Comprehensive Guidance Online

Most small businesses do not have enough knowledge on the benefits of contributing to a pension. If you are someone who needs more information, you are able to get more guidance from NEST Pension website. NEST also offers one of the pension schemes which you can choose from. Bigger businesses might go for other pension providers to set up the workplace pension for them and have specific educational training from the provider, but for small businesses NEST Pension might be the only option available.


What About Family Businesses?

There are cases where there are family businesses operating where one family member is the director and they have a spouse or children working for them. If your family members are employees, this duty will also apply to them. You do need to check your staging date and be aware of the steps you need to take to make sure everything is compliant.


What If an Employee Does Not Want to Be Enrolled?

It is important to note that as an employer you cannot force your workers, who are entitled to the pension, to get out of the pension scheme. It is up to the employees to make the decision for themselves. There is an opt out period for the employee, which is one month from the date he/she is enrolled. If there has been a deduction previously, and they do decide to opt out they are able to get a full refund. In order to validate the opt-out process, the employee would need to give you a notice and request a notice form from the pension provider. Re-Enrolment into the pension scheme is carried out once every 3 years, employees that have opted out will be put back in which means they would need to opt out again.


Things You Need to Do Prior To Your Staging Date


1. Work out your payroll costs

2. Assess your workers

3. Communicate with your workers

4. Decide which pension scheme to go for


Have you found this article useful? For more insights and support from our penal of financial experts, please be free to request to join our exclusive Facebook group Tax Deductible Lifestyle Tribe.

For more details of the tax breaks and tailored advice, please get in touch with the author of this article!



Tax Return: DIY or NOT?

It is now the mid of 2017 which means it is time for people to start filing their 16-17 tax returns. There are people that wonder if they are able to do their tax returns themselves or if they would need to hire an accountant to do it for them. Different people have their own opinions and understanding of what a tax return is and what is required. Today we will run through the basic requirements and reliefs for Self-assessment which will give you an opportunity to decide whether DIY tax returns are a good choice for you.


Does Self-Assessment Apply to You?


Employee: If you only have a salaried job and that is your only source of income, you are less likely to be required to file a self-assessment. Because your taxes are being taken care of by PAYE tax code. However, this duty is required if you earn more than £100k per year. Also, if you claim the child benefit plus you earn more than £50k a year, then you are required to file a self-assessment and declare the high income child benefit tax charge.


Also if you claim professional expenses, e.g. medical doctors claim their professional fees, etc, you may find it quicker to receive a tax rebate when you claim it via filing a self-assessment. In particular, you will need to do so if your expenses are more than £2,500.


Self-employed: Currently, there’s a £1,000 exemption for self-employment income, which means that you may not need to file tax return if you earn less than that for the year. If not, a full self-assessment tax return is required.


If there are expenses and eventually you quit your job and you pay tax on your employment income then you might find it beneficial to file a self-assessment. This is because if you are making a loss you can use the loss to offset your employment income and get some tax refunds to aid your cash flow.


Company directors: If you are director of a company you are required to file a self-assessment, as you may receive dividend income which is not taxed at source. However, in the event your company is dormant, or your business is making a loss where no dividends to take, you can avoid this duty.


Investors: Income from stocks and shares, investment properties, and capital gains are required to be declared via self-assessment. However, If your rental income is less than £1,000 then you do not need to declare it. Also if you are renting out a spare room, the rent-a-room scheme means that you do not have to declare the rental income if it is less than £7,500 (under the current legislation).



Some DIY-able Tax Relief


  1. Charitable Donations – Charitable donations can help you reduce the total taxable income. In particular, for individuals who earn more than £100k and start losing personal allowance, some charitable donations may well protect your personal allowance.


  1. Pension Contribution – You can contribute into a personal pension and get tax relief. If you are a basic rate taxpayer, you get £20 tax relief for every £80 you contribute. And if you are a higher rate taxpayer, the tax relief you get will be even more.


  1. ISA – With an ISA you earn tax-free interest, including a stocks and shares ISA. Your money is in a tax-free environment.


  1. Usual Saving Accounts – If you have a joint account with your spouse or your family member, but they are earning under the tax-free threshold (currently is £11,500), or not earning at all, then you may consider telling the bank as they will be able to give the interest without deducting the tax. This is because the bank will usually deduct 20% of the tax before they pay the interest.


  1. Tax-efficient Investments – Investing in certain types of small businesses provides some tax relief. If you invest £10,000 in a Venture Capital Trust, where it provides funds to those small businesses, then you get £3,000 back from the government. When the businesses start making money, they will start paying your dividends which are tax-free as well. But this type of investment can be risky too, so please do seek for advice from a financial advisor to review your investment strategy as a whole.


What If You Don’t Fill in A Tax Return on Time?


There are late filing penalties if you do not file the self-assessment on time. The deadline for this is 31st January each year, i.e. the deadline for 16-17 tax return is 31st January 2018. If you are late for less than 3 months then the penalty is £100. If it is more than 3 months, there will be a daily penalty which could be around £10 a day. If you do owe any tax, then you might have a late payment penalty as the deadline is also 31st January and the penalty depends on how much tax you owe.

Paying Her Majesty: Understand your tax codes and how taxes are collected

Most people feel as though if they are an employee then their tax bill has already been taken care of, but that is not always the case. There are people who have several employments and they do get confused about their tax code. For example, we’ve worked with medical professionals, and when a trainee doctor is working on rotation basis, he/she may have several employers in a year, so the tax code might not all be correct. Some of the HR departments do provide people with the wrong tax codes so individuals will end up having underpaid or overpaid tax.

Tax Codes

1150L – The most common tax code for the current year is 1150L. For 17/18, your tax-free allowance is £11,500, this is where the code comes from, the tax code is calculated by dividing the allowance by 10. The letter L at the end means you will always have a tax-free allowance available which can also be referred to as ‘Personal Allowance’. This tax code is a normal tax code and it can be found on your payslips or documents.

1100L – In 16/17, the normal tax code was 1100L which can mainly be found on your P60. Last year’s personal allowance was £11,000. Each year the code is different and the personal allowance may change so you need to be aware of that to prevent any confusion.

Tax codes beginning with ‘K’ – This tax code means you do not have the full personal allowance. Normally, HMRC will send a letter explaining why your tax code is like this and you will have a detailed calculation. If you have underpaid tax from a previous year you may have this tax code because it saves you time from having to fill in a tax return. In some cases, if your underpaid tax is more than £3,000 you can pay an amount upfront and the rest can be collected via tax code.

BR – Another tax code is BR which stands for ‘Basic Rate’. Normally, it is used for people that have a second job and they pay tax at basic rate tax bracket. Everything they earn will be deducted by 20% because 20% is the basic rate. For example, if you earn £1,000 you will need to pay £200 tax.

D0 – This tax code applies to people that have more than one job here they earn a higher rate. This means that you fall within the 40% tax bracket.

D1 – This applies when an individual has more than one job and where all income are taxed at 45% becomes appropriate.

NT – This particular tax code means no tax is being deducted. This is quite rare but if you are not a UK resident and you do not subject to UK tax then you do not have to pay tax.

0T – This tax code usually applies to people that have zero tax-free allowance. Usually, if you are earning over £100,00 for every extra £2 you earn above £100,000, you lose £1 of personal allowance. In 17/18, you will lose your personal allowance completely if your salary is over £123,000.

Second Payment on Account

If less than 20% of your tax is paid by tax code then you might have to pay tax twice a year. This is called, ‘Second Payment on Account’. From tax year 16-17, the dividend tax changed so for some director only companies or contractors who have taken dividends may have a second payment on account.

In regard to this, it is advised to do your tax return as early as possible just to make sure you have some funds to prepare as you are required to pay half of next year’s tax bill upfront. It is important to take note that the deadline for 16/17 self-assessment is 31st January 2018 and the deadline for the second payment on account for 16/17 is 31st July 2018.

If you feel as though next year your situation is going to change and you do not think you will have a tax bill which means you will have nil then you can claim reduction on second payment on account.

Running as a Limited Company? When to Pay Company tax

A company is a separate entity, separate from yourself, so on itself it has its own deadline and its own financial year. It depends on when the company was registered. Normally, the financial year is 12 calendar months but it is not the usual calendar months. For example, if the company started in 1st April 2016 then your financial year ended 31st March 2017. Corporation tax which is the company’s self-assessment needs to be paid 9 months and 1 day after your financial year ends.