Intuit QuickBooks Small Business Index, December 2024
TAX AND PENSIONS
How to avoid Self Assessment penalties
Do you feel ready to do your Self Assessment tax return with a smile this year?
If you’re worried about missing a deadline, you’re not alone! In this guide, we cover the penalties for filing or paying your Self Assessment late, plus easy tips to avoid them.
From April 2024, taxpayers voluntarily joining MTD for ITSA has a new set of penalties for missing deadlines.
What are the penalties for missing a deadline?
There are multiple penalties for the Self Assessment process, depending on which Self Assessment deadline you have missed, or if you’ve failed to register to do one.
Late filing
The deadline for filing your Self Assessment tax return online is midnight 31 January 2024.
If you miss the deadline, you will have to pay a fixed, automatic late penalty of £100. If you are over 3 months late submitting your tax return, you will have to pay more.
3 Months Late: a daily penalty of £10 every day, up to 90 days (£900 maximum)
6 Months Late: a penalty of £300 or 5% of the tax you owe (whichever is higher)
12 Months Late: a penalty of £300 or 5% of the tax you owe (whichever is higher)
If HMRC finds you’ve been deliberately hiding your tax information, this is even higher. HMRC also charge interest on late payments of tax or penalties, so it’s best to get things sorted fast.
Late payment
The deadline for paying your tax (after doing Self Assessment) is also 31st January 2025.
If you’re late paying your tax bill, you’ll have to pay a fine, even if you filed on time.
30 Days Late: a penalty of 5% of tax due
If you pay later than this, you may be fined more.
You can estimate your fine using this tool on HMRC. Ideally, you’ll want to file your tax return and pay any tax due well before the deadline.
Failure to notify
There are also penalties for not telling HMRC you need to do a self-assessment at all.
Penalties for failing to notify vary on a number of factors, for example:
How late after tax was due they find out you haven’t registered, filed or paid
Whether your behaviour was judged non-deliberate, deliberate, or concealed
If you disclosed your mistake unprompted or whether you were caught out
The judged quality of your disclosure, known as ‘telling, helping and giving’
You can lose considerable revenue (or none!) depending on whether you deliberately did something wrong, or have a reasonable excuse for a non-deliberate failure to notify.
What is a reasonable excuse for HMRC?
If you have taken reasonable care with your bookkeeping and something genuinely wasn’t your fault, HMRC may be reasonable with you. Here are some rare situations where HMRC may cancel your financial penalty:
There was an error with your bank or a postal delay with a paper form
There was a technical error that you didn’t know about when filing or paying
When payment or filing was due, you were seriously ill or in difficult circumstances
You were given the wrong advice by HMRC, or they didn’t contact you at all
You have up to 12 months to change your tax return after the deadline, so there’s time to check for errors.
Filing with errors
You can also get penalties if you make mistakes in your tax return, especially if deliberate. These work similarly to failure to notify penalties, and depend on the circumstances.
Known as ‘inaccuracy penalties’, HMRC can charge a penalty if they think you’ve misrepresented or understated your tax. Penalties depend on how serious the error is, and whether you told HMRC before they found out. If you were careless, it can cost 30% of your unpaid tax, or up to 100% if deliberate.
Penalties are lower if you report the error yourself, and can be higher if offshore income is involved. Taxpayers can appeal or suspend the penalty if the error was made despite reasonable care.
Using Self Assessment software is an easy way to ensure your tax return is correct.
Examples of Self Assessment penalties
Over half a million people missed the tax deadline last year and received an automatic £100 fine.
There are many reasons why a business could get a late filing or payment penalty. Here are a few examples, not including the possible appeal process that might follow.
Late filing penalty
One example could be that business A shortly missed the deadline for filing its Self Assessment tax return, due to leaving it to the last minute and submitting it a day late. This would lead to an automatic fixed £100 fine, which would need to be paid to HMRC.
Late payment penalty
Another example could be that business B was struggling financially, so they couldn’t pay the bill from their tax return on time. The later they left it, the more the late penalty grew. After leaving it for 6 months, they had to pay 5% of outstanding tax due at that date.
Failure to notify penalty
A last example would be that business C failed to notify HMRC that they needed to do a Self Assessment. Depending on whether this was deliberate or a mistake, and whether they realised their mistake or had to be prompted, this could result in a severe penalty.
Tips to avoid paying a late Self Assessment penalty
With good preparation for your Self Assessment, it’s easy to avoid paying a late penalty. Here are a few tips and strategies to keep your tax journey smooth and stress-free.
Keep the deadlines in your calendar
To avoid penalties, make sure all the Self Assessment deadlines are in your diary, including registering, submitting your paper or online tax return, and paying your bill.
Add alerts to your phone if needed, and leave yourself plenty of time to get it done!
Get help from a financial advisor
If your business is large or complex (or if you just require a bit of support), getting help from a financial consultant, accountant, or advisor can help you get through the process.
You can find a QuickBooks-certified accountant in our directory.
Keep accurate financial records
Keeping diligent records will help you collate all the information you need for Self Assessment. This includes invoices, receipts for expenses, and bank statements.
Not only will you not have to spend time searching for them, but it can help avoid errors.
Use online tools for calculating tax
Using online accounting software like QuickBooks makes the whole process easier, as the software can help perform calculations for you. Some software integrates directly into the tax return system, making it even easier.
Common mistakes during Self Assessment
Self Assessment involves a lot of planning, and there are many regulations to meet. Here are a few common mistakes, so you can avoid paying a Self Assessment fine.
Overlooking tax and deductions
It’s important to understand what deductions you’re eligible for – they can save you money. Equally, don’t overlook any extra tax relating to your sector or business type.
Having out-of-date information
Make sure you have the right dates for this year’s Self Assessment. This information can always be found on the official government website, alongside any changes or updates.
Before you submit your tax return, make sure all the information is accurate and in date.
Not including all of your income
The most common mistake in Self Assessment is omitting sources of income. This could be rent from properties, freelance work, dividends, or income from working abroad. Leaving out taxable income could land you with a penalty, especially if you hide it.
Leaving it until the last minute
Self Assessment can take longer than you think, so leave yourself plenty of time to avoid having to pay a late filing penalty. The late filing penalty of £100 is fixed and automatic.
By avoiding common mistakes, you can ensure you keep your well-earned revenue.
How QuickBooks can help avoid late penalties
QuickBooks can be an invaluable tool for getting your Self Assessment done on time.
Accurate record-keeping
You can track and categorise your income and expenses easily, allowing you to keep accurate financial records throughout the year and be less likely to make mistakes.
It calculates Income tax for you
QuickBooks helps to calculate your tax throughout the year, so you can be confident when it’s time to do your Self Assessment. It calculates an estimate of your income tax and national insurance based on your submitted transactions.
Tracks deductible expenses
QuickBooks helps to track deductible expenses from your sources of income, This allows you to save money and not miss out on potential deductions, helping lower your tax bill.
Expert advice and resources
Browse a huge range of video tutorials and how-to guides or get human support at the end of a phone.
Self Assessment Penalty FAQs
What is the appeal process if I pay my Self Assessment late?
You need to appeal within 30 days of when HMRC sent you the penalty notice, online or by post.
In the UK, the process typically involves requesting a review from HM Revenue and Customs (HMRC). If you are dissatisfied, you can escalate the appeal to an independent tribunal, which provides an impartial review. Legal action through the courts is a last resort. However, the specific details and procedures can vary depending on the circumstances and the type of penalty. It's advisable to consult HMRC's guidelines and potentially seek professional advice when appealing tax penalties in the UK.
What if I can’t afford to pay a Self Assessment penalty?
If you're unable to pay a late self-assessment penalty in the UK, contact HM Revenue and Customs (HMRC) to discuss your situation. Options include setting up a payment plan, appealing the penalty, or requesting a Time to Pay (TTP) arrangement for severe financial hardship. Open and timely communication with HMRC is key to finding a manageable solution, and professional advice may be beneficial in complex cases.
What happens if I trigger an investigation from HMRC?
If you trigger an investigation from HM Revenue and Customs (HMRC), your financial records, tax returns, and other relevant documents will be examined to ensure compliance with tax regulations. During the investigation, HMRC may request additional information, conduct interviews, and scrutinise your financial affairs to assess the accuracy of your tax returns. The outcome can range from no adjustments to your tax liability to the imposition of penalties, fines, or even legal action in cases of deliberate tax evasion or fraud.
Feel you’re better informed about first time Self Assessment tax returns? The QuickBooks blog covers a wide range of business-related topics – it’s all part of our mission to help small businesses grow. Stay compliant with QuickBooks
The information on this website is provided free of charge and is intended to be helpful to a wide range of businesses. Because of its general nature the information cannot be taken as comprehensive and they do not constitute and should never be used as a substitute for legal, accounting, tax or professional advice. We cannot guarantee that the information applies to the individual circumstances of your business. Despite our best efforts it is possible that some information may be out of date. Any reliance you place on information found on this site or linked to on other websites will be at your own risk.
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