HMRC fails the grade on guidance
Taxpayers can avoid a penalty for filing a tax return late if they have a reasonable excuse. But HM Revenue & Customs (HMRC) has come under fire for giving taxpayers guidance on what this means that is at odds with the interpretation given by tribunals. HMRC is also being criticised for delays that allow penalties to mount up.
The term reasonable excuse is not defined in the legislation. In a number of recent cases, tax tribunals have criticised HMRCs guidance, which states that taxpayers would have a reasonable excuse when some unforeseeable and exceptional event beyond their control has prevented them from filing the return on time.
Official interpretation too narrow
The tribunal says that HMRCs official interpretation is too narrow, and in particular the tribunal says that the event need not be exceptional. At some tribunal hearings HMRC has now admitted that its definition is wrong, but so far the guidance on its website has not been changed.
Employers face a different problem. If they file their end-of-year returns late they are charged a penalty of £100 per 50 employees for each month or part month that the return is outstanding. But HMRC does not send out the penalty notice until four months after the filing date of 19 May, which means that employers might accumulate a minimum £500 penalty (four months plus part of the fifth) before realising there is a problem.
How to delay tax payments
For many taxpayers the problem is not so much making the return as paying the tax due. If you know that you will be unable to pay a tax bill (including VAT), HMRC might allow you more time to pay. You must, however, contact HMRCs business payment support service before the tax payment is due. You will need to explain why you cannot pay, what steps you have taken to raise the money, how much you can pay immediately and how long you need to pay the rest. Remember that whatever arrangement you set up to pay a tax bill will only be for that liability. You will have to contact HMRC again if you cannot pay another bill.
Paying on time
If you can pay your tax on time, make sure you actually do so. These days many online payments fall within the banks faster payments system, which means they take two hours to reach the payees account, but payments to HMRC still take three working days. Bear in mind also that where the due date is on a weekend or bank holiday, the payment must arrive by the previous working day. If, for example, your monthly PAYE payment is due on Sunday 22 January 2012, you should pay it by Wednesday 18 January to ensure it arrives on Friday 20 January.
For VAT, you should consider using direct debit as it gives you another three days before HMRC takes the payment from your bank account, on top of the seven extra days allowed if you file your VAT returns online.
Although HMRC expects taxpayers to get returns and payments in on time, its attitude to dealing with taxpayers correspondence is more relaxed. Bulk post issued by HMRC often arrives many days – or even weeks – after it is dated and letters to HMRC go astray all too often. HMRC is now looking at scanning all incoming correspondence within days of its arrival to ensure it is dealt with.
Such problems only reinforce the need to get your tax right and avoid lengthy enquiry correspondence. If you would like further advice on tax deadlines and paying your tax, please get in touch.