How much is the penalty for filing taxes late?

No business owner wants to pay any more tax than they have to – but what happens if you forget to file your returns on time, and what do HMRC charge for filing your taxes late? This article will dig into those topics, so you are prepared in case of an emergency late charge:

• How much is the penalty if I file my self-assessment tax return late? 
• How much is the penalty if I file my VAT return late? 

If you miss the self-assessment submission deadline, you will incur a late filing penalty of £100. If you submit your tax return and pay your final bill within the three months after the deadline, HMRC will charge you interest on the late payment as well as your £100 fee.

If you pay later than three months late or do not pay your bill on time, the penalty fee will be higher than £100, as well as extra interest on the amount of your tax bill that you owe HMRC. HMRC has a calculator to help you estimate how much your penalty charges will be, which you can find here. 

You are able to appeal penalty charges if there was a genuine reason that you were unable to submit or pay on time. HMRC states that reasonable excuses are:

• Your partner or close family member died shortly before the deadline for filing.
• You had an unexpected hospital stay which meant you couldn’t access your records to submit the return.
• You suffered from a severe or life-threatening illness or accident.
• The software you use to manage your accounting failed just before the deadline, despite maintaining the records in it (meaning the failure wasn’t due to your neglect or not updating it).
• HMRC’s self-assessment portal has technical issues, preventing you from submitting the return on time.
• Fire, flood or theft stopped you from submitting on time.
• Your delay in filing concerns a disability.

To avoid charges, let’s look at ways you can prepare yourself to submit your return on time.

First, familiarise yourself with the deadlines that apply to your submission. For income tax self-assessments, these are the relevant dates you’ll need to know:

• You must register to submit a self-assessment by the 5th of October.
• You must submit paper form tax returns by the 31st of October.
• You must submit online returns by the 31st of January.
• You must pay your tax bill in full by the 31st of January.

You have until midnight on the day of the deadline. If you submit after midnight, then you could face penalties.

Then make sure you have everything you need to be able to submit your return. 

First, have you registered with HMRC already and do you know your login details? Second, you have to notify HMRC of your status as a self-employed person (or someone who makes income on the side of regular employment). 

Once you are registered to fill in a self-assessment, you can send your tax return online using the HMRC portal or paper forms (but as we saw above, the deadline for paper forms is earlier).

Then make sure you have any proof you have to submit with the tax return ready, such as invoices as proof of income and receipts for your expenses.

There is no set penalty for a late VAT return; the cost all depends on how much you owe to HMRC as the penalty is calculated as a percentage of what you owe, with interest. So how does a late VAT return work?

If you are a VAT registered business, you’ll have to submit returns via the HMRC website portal every three months. You can find your business deadline for submission and payment on your HMRC VAT online account.

If HMRC doesn’t receive your return by the deadline, or if you don’t make the full payment of your VAT bill by the date required, then you will be issued with a ‘default’ on your HMRC account. For your first default, then you will not be issued with a penalty fine. Afterwards, you may enter what is called the ‘surcharge period’.

HMRC makes an exception if this is your first late payment for your VAT. However, in the twelve months following, you may not accrue any surcharges (extra fees) at all. Instead, HMRC will send a reminder letter advising that the VAT you owe is late.

If your turnover is over £150,000, you are only provided one ‘grace’ period for any late VAT bills, without surcharges. However, HMRC offers smaller companies with less turnover some support to pay in the first instance. They will then be issued a Surcharge Liability Notice if they incur a second default.

You’ll get a second default if you are late for submission again. HMRC will then place businesses with less than £150,000 turnover in the surcharge period for a year where they will be charged interest on the owed VAT amount. If the company misses another deadline in that year, HMRC will extend the surcharge period by another year, where charges will continue to build upon every VAT payment made. 

When the charges start to build up, the VAT bill will continue to rise. The added extra percentage charges on top of the bill you owe can make paying very difficult to manage.

You can ask an accountant to file your tax returns for you, whether it is for VAT or your self-assessment. Of course, you need to authorise them through HMRC to submit this information for you, but this could help if you find it challenging to manage your business’s tax obligations.

By setting up a Countingup business current account, you can manage all your financial data in one place. The app comes with free built-in accounting software that automates the time-consuming aspects of bookkeeping and taxes. 

You can view real-time insights into your business’ finances, such as cash flow and profit and loss statements. The app provides running tax estimates so that you always know how much to set aside for your tax return. Find out more here.