Just after the end of the tax year, a tax return or notice to file should be received from HMRC. The return must be completed and filed with HMRC. The return requires a statement of income and capital gains for the tax year that has just ended.
Late filing penalties
A late filing penalty of GBP100 applies if a return is not delivered by the filing date.
If the filing failure continues for more than 3 months after the filing date, and HMRC decide that a penalty is due and give written notice of the date from which the penalty is due, a daily penalty of GBP10 may be charged.
This penalty may run for a maximum of 90 days from any date specified in the notice that is later than 3 months after the filing date (the date of the notification itself is irrelevant). The daily penalty ceases to accrue if the failure is remedied before the expiry of the 90 day period.
If the failure continues for more than 6 months after the filing date there is a further fixed penalty of either GBP300 or 5% of the tax liability that would have been shown on the return( whichever is the greater).
If the failure continues for 12 months after the filing date a further penalty is imposed. For a non-deliberate failure to file a return, the penalty is the greater of GBP300 or 5% of the tax liability. A deliberate and concealed withholding of the tax return can attract penalties of 100% of the tax liability (in some cases involving offshore matters (see below), the penalty can exceed 100% of the tax – 200% in some cases).
For example, HMRC issued a notice to file to Mr Smith for the 2014/15 tax year on 6 April 2015. Mr Smith was waiting for some of his financial information for the year to arrive and so put the notice to one side and subsequently forgot about it. He then failed to submit his tax return by the 31 January 2016 deadline. As he was very busy with work, he failed to notice the reminders from HMRC and notices of the penalties accruing and did not submit his tax return until 15 February 2017. His tax return showed a liability for the year of GBP15,800.
His penalties would be as follows (based on non-deliberate withholding of tax return):
|Penalty accrual date||Amount (GBP £)|
|Late: 15 February 2017||100|
|3 months late: 1 May 2016 – 29 July 2016 (90 days x GBP10 per day)||900|
|6 months late: 1 August 2016 (the larger of GBP300 or 5% x GBP15,800)||790|
|12 months late: 1 February 2017 (the larger of GBP300 or 5% x GBP15,800)||790|
Penalties for Inaccuracy etc
Tax-based penalties apply also to returns that are incorrect due to carelessness or deliberate and/or concealed behaviour. The penalty regime for inaccuracies looks broadly as follows (this does not include the new Failure to Correct (FTC) penalty regime which is outside the scope of this article):
|Type of behaviour||Unprompted disclosure||Prompted disclosure|
|Reasonable care||No Penalty||No Penalty|
|Careless||0% to 30%||15% to 30%|
|Deliberate||20% to 70%||35% to 70%|
|Deliberate and concealed||30% to 100%||50% to 100%|
Where in a given range the penalty will actually fall is determined by what HMRC call the quality of disclosure and includes:
- The time lag between the inaccuracy and disclosure;
- The amount of relevant information provision to HMRC;
- The extent to which HMRC are assisted in establishing the correct liability; and,
- The extent to which records are made available to HMRC.
Again there are increased penalties of up to 200% in cases involving offshore matters. An offshore matter is an inaccuracy, failure to notify or deliberate withholding of information that leads to a loss of revenue that is charged on or relates to:
- income arising from a source in a territory outside the United Kingdom;
- assets situated or held in a territory outside the U.K.; or,
- activities carried on wholly or mainly in a territory outside the U.K.
Where the tax return shows additional tax is payable, it is due by 31 January following the end of the tax year (i.e. the online filing deadline). In such cases, the individual will generally also be required to make prepayments of tax for the following tax year. These are based broadly on the previous year’s underpayment and are due on 31 January in the tax year and on the following 31 July. Any final, balancing payment subsequently found to be due must be made by the following 31 January.
This payment cycle is best illustrated with an example:
- The tax return filing deadline is 31 January 2017 for the 2015/16 tax year.
- A tax return has been filed for 2015/16 which shows a significant underpayment.
- This underpayment will be payable by 31 January 2017.
- Two prepayments of tax for 2016/17 will also be required, one on 31 January 2017 and the other on 31 July 2017. These prepayments are called Payments on Account (“POAs”).
- Each POA will usually be based on half of the prior year (in this case 2015/16) underpayment.
- Once the final 2016/17 liability is calculated, the POAs are netted off and any balance due is payable by 31 January 2018 (if the POAs exceed the final liability, the excess is repaid to the taxpayer).
- And the cycle repeats year on year.
Late Payment Interest and Penalties
If payments are not made on time, interest is charged.
Additionally, if the tax is paid more than 30 days late, a penalty of 5% of the tax unpaid is charged. Another 5% is charged if the delay exceeds 6 months, and again another 5% penalty is charged if the delay exceeds 12 months.
It should also be noted that strict liability criminal offences have recently been introduced into the U.K. tax code in relation to offshore income, assets and activities. The offences cover failure to notify chargeability, failure to deliver a tax return and inaccuracies in documents (e.g. tax returns). There are particular safe-harbours such as the £25,000 threshold and the focus on income not reportable under the common reporting standard (CRS).
However, considerable care should be exercised as anyone found guilty is liable to a fine and/or imprisonment for up to 51 weeks in England and Wales.
The legislation came into force on 7 October 2017.
A new Failure to Correct (FTC) penalty regime has also been introduced. This is a backward looking penalty which is designed to encourage taxpayers to disclose any irregularities for tax years up to 5 April 2017 before 30 September 2018. Any irregularities in those years not disclosed to HMRC before 30 September 2018 will be subject to FTC penalties (up to 200% of the tax). Specialist advice should be sought.
1) Ashwin given UK employment contract with a fixed Gross Amount which indicates Ashwin is no longer an Indian Employee but a UK Employee hence unable to benefit from the Tax and NI Savings.
2) Incorrectly setting Compensation Structure or omitting expenses altogether as HR unaware.
3) Employers aware employees to be in the UK for more than 2 years either from the outset or during the project
4) Not maintaining proper records of receipts and letting it lapse. Extremely important receipts are kept to justify the expenditure
5) Increase Expenses to a higher level without knowing the employees level of expenditure.
6) Employees claiming Accommodation and Subsistence for whole family when the tax/NI breaks should only applies to the employee not family. This may need to pro-rated accordingly
7) Possibly creating a permanent establishment for the overseas Employer if the overall structure not managed correctly.
Ways of operating Detached Duty Relief
1) Pay on Actual Expenses. This maybe cumbersome. Can use Scale Rate Payments.Company will need an expense policy.
2) Round Sum Allowances. Permission will need to be sought from HMRC
3) Modified PAYE Scheme: Form of Tax Equalisation whereby the employer taxes care of the taxes and national insurance and tells the employee what Net Pay they will receive. Taxes are estimated and then any adjustments are dealt with at the financial year end or in the self assessment tax return.
While the tax saving may be great – Detached Duty relief has the big disadvantage of increased administration and this may well put off some employers from implementing such a scheme.
Short Term Business Visitors
Linked to the temporary workplace relief is Short Term Business Visitors.