We hope you have all had a very happy Christmas, but now it is time to look towards getting your tax returns in by the end of January.
A late return incurs penalties even if it shows no tax payable. These rise from an immediate £100 to £1,600 after 12 months and are automatic.
Or so we all thought!
A taxpayer recently went to a tribunal over penalties that had been imposed. He claimed that he had submitted his returns on time by first class post, but since he had not used recorded delivery he could not prove this. He had moved house several times and although he had informed HMRC by phone each time there was a delay of several months in recording these moves. He claimed that the first he knew of any alleged late filing was when he eventually received a letter from HMRC notifying him of the penalties, upon receipt of which he immediately re-submitted his returns.
The first tier tribunal (FTT) noted that with no proof of postage it could not accept that he had filed on time. They did, however, look at the level of the penalties. Without getting too technical, whilst the level of the first two penalties charged (amounting to a total of £1,000) were correctly calculated there was some argument about whether the final two penalties, charged after 6 months and 12 months and amounting to £600 in total, could exceed the tax due as there were two apparently conflicting provisions affecting them.
HMRC argued that “by creating two possibilities of a penalty”, parliament clearly intended that there should be a minimum penalty under each of the two paragraphs regardless of the tax at stake, in order to encourage compliance, and they had calculated the penalties accordingly. The FTT disagreed, stating that the notion that it comes down to an alternative between issuing a penalty under one or another provision makes no sense. They said that part of the process of arriving at a £300 penalty is the act of calculating whether 5% of the tax is greater or less than that amount. This being the case, it is clear that the penalty has been determined by reference to tax. “It is… not possible to impose a £300 penalty without first having referred to the liability to tax”.
The initial £100 and three-month £900 penalties were upheld since Jagger had shown no reasonable excuse for missing the deadlines. The six-month and twelve-month penalties were reduced to nil based on the fact that no tax was due for either year. Interestingly, and rather stupidly, this might not have applied if the returns had been submitted before they were 12 months late.