If today’s tax deadline came out of the blue for some clients, adopting a damage limitation exercise could be advice that adds real value.
Before doing anything, registering with HM Revenue & Customs (HMRC) may be the starting point even at this late stage. If anyone is unsure of whether there is a requirement to register, use the tool on gov.uk to check the position.
If a client has property income, other investment income, runs a business or receives income from overseas, it is likely there will be a requirement to register, whether or not they are making a profit.
There is no longer an obligation for a company director to register simply because of that status. If HMRC has issued a ‘notice to file’, however, there is a legal obligation to file a return. Where a notice has been issued, but the requirements are not met for a particular year, a request can be made for the notice to be withdrawn.
Tell the taxman
If there is a new source of income and that triggers a new obligation to file a return, the date for notification is 5 October following the end of the tax year in which the new source arose. HMRC can issue ‘failure to notify’ penalties, based on the level of the tax liability that remains unpaid at the normal due date (which will usually be 31 January) – as well as taxpayer behaviour.
So telling the taxman as soon as possible is a good idea. If clients register beyond the 5 October deadline, HMRC should extend the filing deadline by three months but note that interest is still due on tax paid after the normal payment date.
Where a return is late, HMRC will usually charge a penalty even if there is no tax due. The initial penalty is £100, but after a delay of three months there is also a daily penalty of £10, up to a maximum of £900.
After six months a £300 penalty or 5% of any outstanding tax (if greater) is added, with another £300 (or 5% added if greater) after 12 months. The maximum penalty can be 100% of the tax charged.
Changes in taxpayer circumstances can often result in a reluctance to file a return when there will be difficulties in paying the tax due. HMRC can determine what it believes the liability to be in the absence of the return being filed.
To argue successfully against what would tend to be an over-optimistic tax calculation, the best strategy is to submit the outstanding return(s) with actual details within three years.
The fact HMRC has determined the tax due will not prevent it from trying to collect what it thinks should be paid. Being honest with HMRC and asking for time to pay is the best approach. It is sympathetic to genuine cases of hardship.
Lynne Rowland is a tax partner with Kingston Smith.