Tax compliance is crucial for businesses in the UK, but missing deadlines can result in penalties and additional costs. In this blog, we’ll break down the penalties for common taxes, such as Corporation Tax and VAT, and provide actionable tips to avoid these financial pitfalls.
Businesses must file their Corporation Tax return within 12 months of the end of their accounting period. Missing this deadline can lead to:
Initial Penalty: £100 if the return is up to 3 months late.
Further Penalty: An additional £100 if the return is over 3 months late.
Six-Month Delay: HMRC estimates the tax due and charges 10% of the unpaid tax as a penalty.
Twelve-Month Delay: Another 10% of the unpaid tax is charged.
VAT penalties are part of the UK’s new VAT penalty system introduced in 2023. Key points include:
Late Submission Penalties
Businesses receive penalty points for each missed VAT return deadline.
A fixed penalty of £200 is issued once a threshold is reached (e.g., 4 missed returns in 24 months for quarterly VAT).
Late Payment Penalties
Days 1-15: No penalty if the VAT due is paid in full or a payment plan is agreed.
Days 16-30: A 2% penalty on the unpaid VAT.
Day 31 Onward: A 4% annualized penalty applied daily until payment is made.
Interest Charges
Late payments accrue interest at the Bank of England base rate plus 2.5%.
Employers must pay PAYE and National Insurance Contributions (NICs) to HMRC by the 22nd of each month (19th if paying by cheque). Late payments attract:
First Late Payment: No penalty.
Subsequent Late Payments:
1% of the total late amount for 1-3 defaults.
2% for 4-6 defaults.
3% for 7-9 defaults.
4% for 10 or more defaults.
For self-employed individuals or small businesses filing self-assessments:
Missed Deadline (£31 January): £100 fixed penalty, even if no tax is owed.
3 Months Late: Daily penalties of £10, up to £900.
6 Months Late: 5% of the tax due or £300, whichever is higher.
12 Months Late: Additional 5% of the tax due or £300.
Set Reminders
Use digital tools or calendars to track tax deadlines and prepare early.
Leverage Technology
Accounting software can automate VAT returns, calculate Corporation Tax, and flag deadlines.
File Even If You Can’t Pay
Submitting returns on time reduces penalties. Contact HMRC to discuss payment plans for outstanding amounts.
Seek Professional Support
Accountants can help manage filings and identify opportunities to optimize tax payments.
Tax penalties and late fees can significantly impact your cash flow and profitability. By understanding the rules and taking proactive measures, businesses can stay compliant and avoid unnecessary costs.
At Breaking the Mould Accounting Ltd, we specialize in helping businesses navigate tax compliance. Contact us today to ensure your filings are on time and accurate, protecting your business from costly penalties.