A reminder of late filing penalties and how to appeal them, information for home based businesses in England and Wales regarding business rates, and notes of a recently decided VAT case that affects the zero rating of children’s clothing.
Self Assessment late filing penalties – INCOME TAX
The deadline for submitting your Self Assessment tax return for 2013-14 has passed. The online filing date, after which penalties apply, was midnight, 31 January 2015.
Penalties for individuals:
If you failed to make the filing deadline a range of penalties becomes payable, or potentially payable, how much will depend on how quickly you bring your affairs up-to-date.
Penalties are progressive:
They apply from 1 day, 3 months, 6 months and 12 months after 31 January 2015 for the 2013-14 return.
- One day late: an automatic penalty of £100 applies.
- 3 months late: a daily penalty of £10 per day for a maximum of 90 days applies (£900).
- 6 months late: a further £300 or 5% of any tax outstanding, whichever is the greater.
- 12 months late: a further £300 or 5% of any tax outstanding, whichever is the greater. In serious cases you may be asked to pay 100% of the tax due instead.
The above penalties are in addition to any penalties and interest for paying tax late.
Penalties for partners:
There is a nasty sting in the tail for partners who fail to submit their partnership Self Assessment return on time.
Even though a partnership tax return is one document, each partner will be charged a penalty for late filing. If a partner is also late in filing their own tax return then separate penalties will apply.
The penalties listed in points 1 and 2 above will be payable by each partner. The penalties in points 3 and 4 will be limited to £300 per partner.
Opportunities to appeal against a penalty charge are considered in the next article.
What is a reasonable excuse for late filing? – INCOME TAX
You may feel aggrieved that you were unable to file your return on time for a perfectly valid reason. If you want to appeal against any penalties charged there is a formal appeals procedure you should follow. In order to convince HMRC to withdraw their penalty notice you will have to convince them that you had a reasonable excuse.
The following examples, of what constitutes a reasonable excuse, are copied from HMRC’s website:
- HMRC Online Services would not accept the tax return – you’ll need to provide the error message you received and the date you tried to send it.
- You did not receive the tax return or letter telling you to complete a tax return – HMRC usually know if you did not because it is sent back undelivered.
- Bereavement – the death of a close relative or domestic partner shortly before the deadline.
- Serious or life-threatening illness, for example, a major heart attack or a serious mental illness that prevents you dealing with your tax affairs.
- You did not receive your online Activation Code, User ID or password in time to send your tax return by the deadline – as long as you tried to get them before the deadline and once you received them you sent your tax return as soon as you could.
- Your tax return or cheque was lost or delayed in the post. You must have posted it in good time to meet the deadline.
- Loss of tax records, through theft, fire or flood that cannot be replaced in time to meet the deadline.
- Your cheque was dishonoured because of an error by your bank.
What HMRC will not accept as a reasonable excuse includes:
- The tax return was too difficult to complete.
- Pressure of work.
- It was your agent’s or tax adviser’s fault that you missed the deadline.
- Lack of information available.
- We did not remind you about the tax return and payment deadlines.
- You want to replace the paper tax return you have already sent with an online tax return to reduce your penalties.
- Unable to send a certain tax return or supplementary pages online as there was no free HMRC software.
- Your cheque was dishonoured due to a shortage of funds or made out incorrectly.
The best possible strategy to avoid penalties is to file your tax return before the statutory deadline. If you are prevented from doing so by circumstances that you feel constitute a reasonable excuse, then you should appeal against the penalty.
Snugglebundl wins appeal – VALUE ADDED TAX
In a recent case considered by the courts a company that sold a baby lifting blanket appealed a ruling by HMRC that the supply was standard rated for VAT purposes.
For the company this placed them at a competitive disadvantage as retail outlets selling the item were required to charge VAT at 20%.
At issue was whether a Snugglebundl qualified as an article designed as clothing or footwear for young children and should therefore be zero rated for VAT when sold.
The First-tier Tribunal disagreed with HMRC’s judgement and the appeal was upheld.
The case is of interest as it helps to clarify that an item of clothing can have other uses and still qualify as clothing for VAT purposes; although the decision in this case is “fact sensitive”.
Home based businesses and business rates – CORPORATE GOVERNANCE & REGULATION
The local property tax you pay, in England and Wales, will be either Council Tax or Non-domestic (business) Rates depending on the type of property. Some properties are part business and part domestic, so you may pay both taxes. Good examples are public houses where the publican lives on the premises or shops where the shopkeeper lives in a flat over the shop.
Generally, you should not have to pay business rates for minor business use of the home. The Government does not normally expect home-based businesses to have to pay business rates if:
- You use a small part of your home for your business (for example you use a bedroom part of the day as an office), and
- You do not use it to sell goods or services to visiting clients or members of the public (as opposed to selling by post), and
- You do not employ other people to work at the premises, and
- You have not made alterations of a sort that would not usually be associated with a home (such as converting a garage to a hairdressers or installing a hydraulic car lift).
These are general guidelines currently set out on the GOV.UK website. Some situations might need the facts of each case to be considered.
Tax Diary February/March 2015 – GENERAL
1 February 2015 – Due date for Corporation Tax payable for the year ended 30 April 2014.
19 February 2015 – PAYE and NIC deductions due for month ended 5 February 2015. (If you pay your tax electronically the due date is 22 February 2015.)
19 February 2015 – Filing deadline for the CIS300 monthly return for the month ended 5 February 2015.
19 February 2015 – CIS tax deducted for the month ended 5 February 2015 is payable by today.
1 March 2015 – Due date for Corporation Tax due for the year ended 31 May 2014.
2 March 2015 – Self Assessment tax for 2013/14 paid after this date will incur a 5% surcharge.
19 March 2015 – PAYE and NIC deductions due for month ended 5 March 2015. (If you pay your tax electronically the due date is 22 March 2015.)
19 March 2015 – Filing deadline for the CIS300 monthly return for the month ended 5 March 2015.
19 March 2015 – CIS tax deducted for the month ended 5 March 2015 is payable by today.