The deadline to file self-assessment tax returns online with HMRC is Friday 31 January at 23:59.
Every year hundreds of thousands of taxpayers miss the deadline and file their tax returns late, potentially resulting in a penalty from HM Revenue & Customs (HMRC).
Depending on how late the return is filed, these penalties can amount to thousands of pounds.
£5 billion targeted by HMRC
According to data from HMRC, attained by an FOI request made by Saffery Champness, since 2012-13 HMRC has issued penalties totalling more than £5 billion. Around 31% (£1.5 billion) of these have been cancelled, suggesting an approximate yield for HMRC from late return penalties of almost £3.5 billion.
HMRC issued more than 14,000 penalties in the period, with around 5,000 being cancelled.
In the financial year 2017-18, 490,000 individuals filed their tax returns late, and HMRC issued 1.714 million late penalties*.If a taxpayer has a reasonable excuse as to why their return was filed late, they can appeal the penalty. If the appeal is successful, the penalty can be cancelled.
Penalty size and appeals
However, the data shows HMRC are taking an increasingly hard line on appealing penalties.
While the size of penalties issued to individuals who file their self-assessment tax return late has remained relatively consistent over the past six years, the average value of a penalty cancelled decreased by 33.6% between 2012-13 and 2017-18 (though more fines applicable to 2017/18 may still be issued). The average value of cancelled penalties in 2016-17 decreased by 9% compared to 2012-13.
This may suggest that HMRC is increasingly unlikely to cancel comparatively larger fines.
The data also shows the number of tax returns filed late by individuals in the UK has decreased by 19.4% since 2012-13, and the number of penalties raised for late tax returns has fallen by 39.7% since 2012-13.
Over the same period, the number of penalties cancelled, as a percentage of penalties raised, has decreased by 16.6%.
Zena Hanks, a partner in the Private Wealth Team at Saffery Champness, discusses the consistent size of late penalties, the falling size of cancelled penalties, why so many people miss the self-assessment deadline, and what the consequences are for those who do:
January 2020 deadline
“Put simply, tax returns must be filed on time. The clock is ticking for the millions of taxpayers who still have not filed their self-assessment tax returns with HMRC.
“If an individual fails to file their return by 31 January, as was the case for millions of taxpayers over the past decade, they will be subject to HMRC’s late fines, which depending on the length of the delay, can tally into the thousands of pounds.
“The initial penalty will be levied if your tax return is filed a minute past the 23:59 deadline – even if you do not owe any tax.
“If people are confident with their tax affairs, using HMRC’s own software is reasonably user friendly. However, if people are less confident, they should employ the services of a professional adviser.
“This year HMRC has been ramping up the pressure on taxpayers to ensure that they file their returns on time and accurately, going as far as sending so-called nudge letters to individuals they consider likely to miss the deadline or file incorrectly.
“It’s not just the self-employed, gig and access economy entrepreneurs who file a self-assessment return; there is a tendency to overlook the multitudes of other taxpayers who also have a filing obligation.
“The self-assessment bloc includes anyone who is a shareholder, a limited company director or has an annual income in excess of £100,000. However, it also extends to those who have earned as little as £2,500 in either rental income or another form of untaxed income such as tips or commission and where a tax liability needs to be reported to HMRC. Perhaps most surprising of all, self-assessment is the designated tax filing system for parents who receive both Child Benefit and earn more than £50,000 per annum.
“Ultimately, these criteria make self-assessment a broad church. A diverse range of income brackets, occupations and statuses are included – from wealthy individuals to those working a second job in order to make ends meet.”
Number of individuals filing late 2012-2018
“It is good to see the number of late filed tax returns decreasing. It may be the case that the pre-population of individuals’ online self-assessment accounts is helping collate the data that is required for tax returns – particularly where an individual’s tax affairs are reasonably straightforward.
“But late filing is only one issue. If there is also tax outstanding at the due date, interest and additional penalties will also be applied.
“It’s important to remember that if a tax return is filed late, the period that HMRC can open an enquiry in is extended by three months to the next quarter-day. For example, where a tax return is received by HMRC on 1 February – just one day late – the enquiry window is extended from 12 months after the date the tax return was filed to 30 April. This gives more time for HMRC to raise an enquiry in which to gather more information on the details that have been submitted to them via the tax return.
“Going forward, we should expect to see more real-time collection of data and payment of tax being introduced in the coming years to remove delays. We can already see real time collection of data via Making Tax Digital for VAT. We will see real time collection of data and payment of tax when the 30-day payment window for capital gains tax (CGT) is introduced April 2020. This system is already in place for non-resident CGT.”
Cancellation of penalties
“While the size of average penalties raised has remained consistent over the last six years, it is interesting to see the average value of cancelled penalties has dropped by over a third. Albeit more fines may be forthcoming which will alter the figures, this suggests that HMRC are significantly less likely to cancel larger penalties – those levied at individuals who file over three months late – than they were six years ago.
“This is all part of HMRC’s new approach, in which we are finding an increasingly hard line being taken and appeals for late filed tax returns are increasingly rejected.
“Additionally, HMRC’s data shows that a significant proportion of penalties each year were levied on historic tax returns. This demonstrates that the appeals process is no quick-fix solution, and the procedure can embroil the taxpayer for years, with an uncertain outcome hanging over their head.
“Although we can’t say for certain, we can assume that a significant proportion of the 345,000 penalties cancelled for late returns in 2017-18 so far were for historic returns – returns which were filed over a year ago. This could be seen as something of an indictment on the appeals process’ speed, which causes taxpayers considerable stress, stretching over months or even years, only for them to be found to have a perfectly legitimate reason for filing late. Appealing a penalty may feel to some taxpayers more like a test of endurance or a war of attrition than an empathetic system of redress.”
Individuals need to complete a self-assessment tax return for the tax year 2018-19 if:
- They earned more than £2,500 from renting a property;
- Their partner received Child Benefit and either of them had an annual income of more than £50,000;
- They received more than £2,500 in other untaxed income, for example from tips or commission;
- They are self-employed sole traders, limited company directors, shareholders, or employees claiming expenses in excess of £2,500; and/or
- They have an annual income over £100,000.
Any of the above who have not registered for self-assessment previously, or who have not filed online previously, should have registered on the HMRC website in October.
*The discrepancy between the number of individuals who file late in a given year, and the number of penalties levied that year, reflects the fact that fines can still be issued or cancelled by HMRC for historic tax returns filed in previous years.