20+ Years Experience

Specialist Insolvency Practitioners

Licensed Insolvency Practitioners

Insolvency Practitioners Nationwide

What are Corporation Tax Late Filing Penalties?

Are you a business owner concerned about the penalties associated with late filing of corporation tax? You’re not alone.

Navigating the world of taxes can be confusing, and the consequences of missing deadlines or underpaying taxes can be costly.

In this blog post, we will take a deep dive into what are corporation tax late filing penalties, including the criteria for these penalties, how they are calculated, and strategies to manage your tax bill effectively.

We will also discuss appeals process, appealing penalties and alternative solutions like Time to Pay arrangements. So let’s get started on understanding just how much corporation tax is to avoid unnecessary penalties and stay on top of your corporation tax obligations.

Short Summary

  • Late filing of corporation tax returns can incur initial penalties of £100. Increased penalties for repeated late filings.
  • Interest charges may also be applied to unpaid taxes, currently at 2.75%.
  • Negotiating Time to Pay arrangements with HMRC is an alternative solution that allows companies to manage their corporation tax payments more effectively and avoid late payment penalties.

Understanding Corporation Tax Late Filing Penalties

Corporation tax late filing penalties are imposed when a company tax return is not submitted by the designated due date.

These penalties are applicable when a company fails to file their corporation tax return or make timely payments of their tax liability.

Filing late can result in punitive measures such following penalties such as late payment penalties and interest charges, which can be detrimental to your company’s financial health.

So, how do you know if you’re at risk of incurring these penalties, and how are they calculated?

Criteria for late filing penalties

The main criterion for incurring late filing penalties is failing to submit the company tax return by the deadline. HMRC will issue a ‘tax determination’ if your corporation tax return is over six months late.

This includes anticipated back tax liability as well as applicable penalties. Additionally, the amount unpaid tax, amount of tax and amount of the ‘Failure to Notify’ penalty is determined based on self assessment of whether the failure was careless, deliberate, or concealed.

For sole traders, a tax return must be completed if the annual gross trading income is £1,000 or more from one or more trades.

To avoid these penalties, it is crucial to be aware of your filing deadlines and submit your tax return on time.

How penalties are calculated

The penalty for late filing of corporation tax returns is determined by applying a percentage to the amount of tax due.

The percentage depends on the extent of the tardiness and the amount of unpaid taxes. Generally, the penalty is 10% of the unpaid tax, although this may increase to 20% if the tax return itself is filed more than a year after the normal filing deadline.

The initial penalty for being one day overdue or failure to pay is £100, and the penalty increases to £500 if the offense is repeated three times. Furthermore, a further penalty and 10% surcharge is applicable to penalty only after 6 months and 12 months of late payment.

Understanding how these penalties are calculated can help you prioritise meeting your filing deadlines and avoid unnecessary financial strain on your business.

The Penalty Structure for Late Corporation Tax Returns

Now that we’ve discussed the criteria and calculation of late filing penalties, let’s explore the penalty structure in more detail.

The initial penalty to pay for being three months late to the deadline, failure to pay, or one day late to payment deadline is £100, and this penalty amount increases if you continue to miss deadlines.

In addition to the initial penalties for late due, there are increased penalties for repeated late filings and surcharges that apply months late due after 6 and 12 months to file late due. Let’s examine these penalty categories in more depth.

Initial penalties

The initial penalty for filing a late corporation tax return is £100. This penalty might not seem like a significant amount, but it can quickly add up if you’re consistently late with your own tax return filings.

It’s important to remember that this penalty applies even if you’re just a single day late to file your tax return. Therefore, to avoid incurring these serious penalties for late due and the potential financial strain they can cause, it’s essential to stay on top of your filing deadlines and file your tax return on time.

Increased penalties for repeated late filings

The penalty for unpaid amount on repeated late filings of corporation tax return is £500. This means that if you miss the deadline for filing your tax return three consecutive times, you will be charged first penalty of £500 for unpaid tax on the third late filing of tax return, in addition to the initial penalties for unpaid tax on the first two late filings of tax return.

These increased penalties are designed to encourage businesses to file their tax returns on time and avoid the financial consequences of persistent late filing.

To prevent incurring these higher due penalties for late due, it’s crucial to establish a system for tracking your filing deadlines and ensuring you meet them consistently.

Consequences of Unpaid Corporation Tax

Unpaid corporation tax can lead to serious consequences for your business, including interest charges and HMRC enforcement actions.

These punitive measures can be substantial and can damage your company’s reputation, making it even more important to ensure you’re meeting your tax obligations.

Let’s take a closer look at the interest charges on late payments or underpaid tax and the enforcement actions that HMRC may take against your business.

Interest charges on late or underpaid tax

If corporation tax is paid past its due date, HMRC will impose interest charges. The rate is calculated as the Bank Base Rate plus 2.5%. The current rate of interest for late payment of corporation tax is 2.75%.

Interest is levied from the day after the tax was due, which is typically 9 months and one day after the conclusion of the accounting period. To avoid these interest charges, it’s essential to prioritise paying your corporation tax on time and in full.

HMRC enforcement actions

Failure to pay your corporation tax can result in HMRC taking enforcement actions against your business.

This may include issuing a formal Notice of Enforcement and listing possessions to be sold if the debt is not settled. Additionally, HMRC may utilise debt collectors or third-party bailiffs to collect the unpaid amount of money owed.

It’s crucial to contact HMRC immediately if the due date for corporation tax has lapsed to avoid legal proceedings.

To prevent these enforcement actions, it’s important to communicate openly with HMRC and work out a plan to settle your outstanding tax liability.

Appealing Late Filing Penalties

If you believe that you have been unfairly penalised for late filing of corporation tax, you may have the option to appeal the penalty.

To appeal a late filing penalty, you must submit a tax return or notify HMRC that no to file your tax return is required, and then submit an appeal in writing within 30 days of the first penalty or notice being issued.

In this section, we’ll discuss the process of appealing late filing penalties and the types of reasonable excuses that may be accepted by HMRC.

How to appeal

To appeal a late filing penalty, you should submit an appeal within 30 days of the late filing penalty notice being issued. It is critical to provide the appeals process with a valid reason for the late filing, such as illness, bereavement, or technical issues with the online filing system.

The appeal must be in writing and can be submitted using an appeal form or a letter of appeal. If your appeal is not approved by HMRC, you can apply to the Tax Tribunal to have the appeal accepted.

To increase the likelihood of a successful appeal, it’s essential to follow the correct procedure and provide a strong case for your reasonable excuse.

Reasonable excuses for late filing

A reasonable excuse for late filing is an unexpected or unusual event beyond your control that prevented you from meeting the deadline to file it. Some common examples of reasonable excuses include illness, bereavement, technical issues with the online filing system, or other unforeseen circumstances.

It’s important to note that not all excuses will be accepted by HMRC, so it’s crucial to provide a well-supported case for your excuse when appealing a late filing penalty. By understanding the types of reasonable excuses accepted by HMRC, you can increase your chances of a successful appeal and potentially avoid costly penalties.

Managing Your Corporation Tax Bill

Effectively managing your corporation tax bill can help you avoid late filing penalties and minimise the financial strain on your business.

Some strategies for managing your tax bill include preparing financial accounts in advance, utilising tax losses, and taking advantage of applicable tax reliefs and deductions.

In this section, we’ll discuss the importance of preparing financial accounts in advance and utilising tax losses to manage your corporation tax bill.

Preparing financial accounts in advance

Preparing financial accounts ahead of time can assist in recognising any mistakes or inconsistencies in the accounts, which can be rectified prior to submitting the tax return. This can help to avert any penalties or fines for inaccurate tax returns.

Additionally, preparing financial accounts promptly after the company’s year-end can help you accurately determine your corporation tax liability.

By being proactive in preparing file your tax return and financial accounts, you can ensure that your tax return is accurate and submitted on time, avoiding unnecessary penalties and interest charges.

Utilising tax losses

Employing tax losses for corporation tax can assist businesses in managing their cash flow, investing in growth, and stimulating risk-taking and innovation. Businesses can carry forward tax losses to offset future profits by deducting them from their taxable income in the subsequent tax year.

Companies can reduce their corporation tax bill by using assets and carrying forward losses to offset future profits. By strategically using assets and utilising tax losses, you can effectively manage your corporation tax bill and minimise the financial impact of late filing penalties.

Time to Pay Arrangements: An Alternative Solution

If you’re struggling to pay your corporation tax bill on time, a Time to Pay arrangement may be an alternative solution for managing your tax payments.

Instalment plans usually take a company around six months to complete. The duration can vary, however, depending on the company’s conditions.

In this section, we’ll discuss what a Time to Pay arrangement is and how to negotiate one with HMRC.

What is a Time to Pay arrangement?

A Time to Pay arrangement is an agreement between a company and HMRC to pay a tax debt in instalments over an agreed period of time. The duration of a Time to Pay arrangement is typically six months, although it may vary depending on the company’s individual circumstances.

If a company fails to adhere to the arrangement, HMRC may demand the debt in full and take legal action to recover the full unpaid tax amount. By entering into a Time to Pay arrangement, you can manage your corporation tax payments more effectively and avoid the consequences of late payment penalties.

How to negotiate a Time to Pay arrangement

To negotiate a Time to Pay arrangement with HMRC, you should contact them on the Self Assessment Payment Helpline at 0300 200 3822 to discuss a potential arrangement. Generally, the arrangement will last for 12 months, although there is no standard arrangement and no upper limit to the amount of time a person needs to pay the debt.

Maintaining effective communication with HMRC and providing them with the necessary information, such as current management accounts and cash flow forecasts, is integral to negotiating a Time to Pay arrangement plan. By proactively engaging with HMRC and negotiating a suitable payment plan, you can better manage your corporation tax obligations and avoid late payment penalties.

Frequently Asked Questions

What is the penalty for filing taxes late in the UK?

The UK has a financial penalty system for filing taxes three months late or single day three months late, with an initial charge of £100 applied immediately and additional daily charges if the return is more than 3 more months late or single day three months late.

There is a deadline penalty also a maximum fine of £300 or 5% of the total tax due applied if the form is 6 months late.

How late can you submit a corporation tax return?

It is recommended that you submit your corporation tax return to HMRC within 12 months of the end of the accounting period. If you are late, penalties and interest may be charged on unpaid amount, so it is best to file your returns as soon as possible.

Filing your returns on time is essential to avoid any additional costs. Make sure to file late submit your returns as soon as possible to avoid any penalties or interest.

Summary

In conclusion, understanding and managing your corporation tax late filing penalties is crucial to maintaining your business’s financial health and reputation.

By being proactive in filing your tax returns, preparing financial accounts in advance, utilising tax losses, and exploring alternative solutions like Time to Pay arrangements, you can avoid costly penalties and interest charges.

Remember, effective communication with HMRC is key to navigating the complexities of corporation tax and ensuring that your company remains in compliance with its tax obligations.

Armed with the knowledge and strategies discussed in this blog post, you can confidently tackle your corporation tax responsibilities and focus on growing your business.

About Insolvency Practitioner

We are Insolvency Practitioners based in Barking who are dedicated to providing expert solutions for financial distress.

Contact Us