HMRC and Companies House Penalties for Late Filing and Late Payment 2020/21

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Filing tax returns and keeping company accounts are some of the important obligations of freelancers, contractors, sole traders, and limited company directors. They must be knowledgeable of the applicable tax rates and must know when they are about to or have exceeded set thresholds.

These businesses must be aware that HMRC and Companies House charge late penalties for tax returns that are not filed on time.

In this article, we will discuss some of the most common financial documents that businesses must complete in terms of taxes. We will also explain the corresponding consequences for any inability to meet the deadline set by the government.

Self-Assessment

A Self-Assessment is filed annually to let HMRC know how much you owe in taxes and National Insurance contributions for the previous year. This is submitted every 31st January.

If a Self-Assessment is filed late and if there are late payments, then both are subject to penalties by HMRC.

Penalties for Late Filing

As mentioned, the deadline for filing a Self-Assessment is on the 31st of January every year. The following penalties are issued for late filing:

  • If a Self-Assessment is late for one day after the deadline, there will be a £100 penalty.
  • If a Self-Assessment is filed three months after the deadline, then there will be a £10 penalty for each day that passes. The maximum penalty is £900, which corresponds to 90 days late.
  • If a Self-Assessment is six months late, then the penalty is equal to £300 or 5% of the tax due, whichever is higher.
  • Finally, if a Self-Assessment is submitted 12 months or even later, after the said deadline, then it is subject to a penalty of £300 or 5% of the tax due, whichever is higher.

If a taxpayer is proven to be making deliberate attempts to evade tax or withhold or fabricate information, HMRC may issue added penalties.

Penalties for Late Payments

These are the corresponding penalties for late payments:

  • Payments that are 30 days late will incur a penalty equivalent to 5% of the tax due.
  • Payments that are late for six months will incur a penalty equivalent to 5% of the tax due during that time.
  • Payments that have been overdue for 12 months or later are subject to a penalty equivalent to 5% of the tax due during that time.

VAT

There are corresponding penalties and surcharges for lapses committed by businesses that are registered for VAT. A business is said to ‘default’ under the following circumstances:

  • the business misses the deadline in filing its VAT return
  • the business misses the deadline in making a full payment for the VAT due, based on the return

Surcharges

A business that ‘defaults’ is allowed to enter a 12-month surcharge period. However, if it defaults again during this 12-month period, then the surcharge period is extended for another 12 months and the business has to pay an additional surcharge apart from the VAT it already owes HMRC.

If the business is late in submitting a return, there are conditions when surcharges may be waived:

  • the company fully pays the VAT on or before the deadline
  • there is no tax to be paid
  • the company is eligible for a VAT repayment

HMRC will send a notification detailing the surcharges that are due and explaining the consequences should the company default again.

The surcharge is calculated based on the outstanding VAT due during the accounting period in default. It is a percentage of the outstanding VAT and, if the business defaults again within a surcharge period, the surcharge increases.

Below is a summary of charges when a business defaults within a surcharge period.

Surcharge for Companies with an Annual Turnover of Less Than £150,000:

  • If a company defaults for the first and second time within the 12-month surcharge period, no surcharge is applied.
  • For the third default, the company will be charged 2% of the outstanding VAT, except when the VAT due is less than £400. In this case, no surcharge is applied.
  • For the fourth default, 5% of outstanding VAT must be paid. If the VAT is less than £400, then no surcharge applies.
  • If a company defaults for the fifth time, it will incur a surcharge equivalent to 10% of the outstanding VAT due or £30, whichever is higher.
  • If the default is for the sixth, or more, time, then the surcharge will be equivalent to 15% of the outstanding VAT or £30 whichever is higher.

Surcharge for Companies with an Annual Turnover of £150,000 or More

  • No surcharge is applied if the company defaults for the first time.
  • For the second default, a surcharge of 2% of the outstanding VAT is applied. However, if the VAT due is less than £400, then there will be no surcharge incurred.
  • For the third default, a company will be charged 5% of the outstanding VAT, but none if the VAT due is less than £400.
  • A company that defaults for the fourth time will be charged 10% or £30, whichever is higher.
  • A fifth default will cost a company a surcharge equivalent to 15% of the VAT due or £30, whichever is higher.
  • A sixth, or more, default will lead to a company paying a surcharge of £30 or 15% of the VAT due, whichever is higher.

Penalties

For tax returns that are under-stated or over-claimed and have obvious mistakes or show signs of deliberate neglect when filing, HMRC may charge a penalty of up to 100%.

In cases where HMRC sends an assessment that is too low, and a business fails to inform them of this inaccuracy within 30 days, HMRC may charge a 30% penalty.

Companies that file a paper VAT return, instead of an electronic one, may also be charged £400, unless that company was instructed to do so.

Corporation Tax Return (Form CT600)

The corresponding penalties for Company Tax Returns (Form CT600) that are not filed on time are as follows:

  • 1 day late after the deadline: £100 penalty
  • 3 months late after the deadline: Another £100 penalty
  • 6 months late after the deadline: 10% of the estimated unpaid Corporation Tax bill
  • 12 months late after the deadline: Another 10% of the unpaid tax

If there are three consecutive instances of late filing of tax return, each £100 penalty is increased to £500.

Being six months late in filing a tax return will prompt HMRC to send a “tax determination” letter with details on the estimated amount of Corporation Tax owed. Upon receiving the letter, the business is obliged to submit the tax return and pay the tax due. Only then will the interest and penalties be reevaluated.

Construction Industry Scheme (CIS)

Contractors working under the Construction Industry Scheme or CIS are bound by certain rules on tax filing as well. Missing the date for filing CIS returns will have corresponding penalties.

  • 1 day late: £100 penalty
  • 2 months late: £200 penalty
  • 6 months late: £300 penalty or 5% of the CIS deductions, whichever is higher
  • 12 months late: £300 penalty or 5% of the CIS deductions, whichever is higher

Companies House – Private Limited Company

Companies House has their own set of deadlines for filing of annual accounts. Companies that fail to meet these deadlines must pay the penalties detailed below:

  • 1 month after the deadline: £150 penalty
  • 1 to 3 months after the deadline: £375 penalty
  • 3 to 6 months after the deadline: £750 penalty
  • More than 6 months after the deadline: £1500

Penalties incurred by accounts that were filed late the previous year and were late again during the present year will automatically increase by 100%.

Please note that limited companies in the public sector are charged a different amount of penalties for late filing.

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