What Happens When you Don’t File or Pay Taxes on Time?

When you begin to pay taxes in a country, it is essential that you have a firm grasp of how much you are likely to be charged, and also what the consequences are for late filing and payment. Many countries administer their tax systems differently, but what you should know is that there are penalties for late filing of your taxes in the UK.

The penalties for late filing or payment vary in the UK, depending on whether you are an individual or a business. We have outlined the relevant information below, broken down by both personal and business taxation categories.

Personal Taxation

If you are sent a self-assessment tax return by HM Revenue and Customs, you are required by law to fill it in and return it, even if you don't believe that you owe any tax. It is important to take note of this because there is a range of financial penalties that you will start to pay from the first day after a late filing.

Filing - Online or Paper

There are two ways to file your self-assessment tax return, you can either do it on paper or online via the HMRC website. Some people still prefer the reassurance of filling in their tax return as a paper document, whereas others are more comfortable with the use of digital means. The two methods have different timescales attached to them and they are as follows:

Online: The deadline for filing the completed 2021 to 2022 tax return online and paying any tax liabilities incurred is midnight on the 31st January 2023.

Paper Copy: If you submit a paper tax return for the tax year 2021/22, you need to send the form to HMRC by 31 October 2022.

Penalties for Late Filing and Payment

HMRC will levy fines in the first instance if tax returns are filed after the deadline. The fine is £100 for the first day that you are late in filing and there is a further £100 to pay if you reach three months without submitting the information.

You will be expected to both file your self-assessment and pay your first instalment on 31st January if you are filing online. There is a separate financial penalty for late payment so if you neither file your taxes nor pay the first instalment, you will be fined £100 for each of these infringements. If you pay a penalty late, you will also be charged interest on the amount of the penalty. 

HMRC will further charge £10 per day once the return is 3 months late, for a maximum of 90 days. They will also charge whichever is higher between £300 and 5% of the tax due. This is to be applied if the self-assessment form is 6 months late. A further £300 or 5% of the tax due (whichever is higher) will be applied in the event of the form being 12 months late in being submitted.

Business Taxation

Some small businesses are covered by the information above regarding individual tax returns, if they happen to be single-person business acting as a “sole trader”. For the purposes of the business taxation section, we will concentrate on corporate entities and the consequences of late payment of corporation tax and other taxes such as Value Added Tax.

Late Payment of Corporation Tax

Corporation Tax is the tax that companies are required to pay on their profits and in the UK this is currently charged at a rate of 19%, though this will change to a banded system in 2023, with businesses paying different rates based on the size of the profits generated.

As corporation tax is calculated based on the profits that a business has made, this makes it essential that the accounts are filed on time, so that the appropriate amounts of tax can be levied. It is a director's responsibility to ensure that the correct company accounts are filed with Companies House within nine months of the financial year-end.

If accounts are not filed in the timescale outlined above, the following penalties apply: A £100 fine for missing the deadline which rises to £500 if the deadline has been missed three consecutive times. After three months, there is a further £100 or £500 fine based on the same criteria. After six months there is a further fine equivalent to 10% of all taxes due and the same again when you get to a year.

If your company fails to keep adequate records relating to your filing periods and accounts, this opens you up to a £3,000 fine as this is a requirement for all UK businesses. HMRC will issue letters demanding payment of the outstanding amounts, along with the relevant fines but it is unlikely that enforcement action will be taken against any individual director. The important thing to remember is that HMRC only wants the tax money that they are due and they have a statutory duty set down in legislation to attempt to recoup this.

Worst Case Scenario

The consequences for a business not paying taxes owed to HMRC on time can be catastrophic. It is possible that bailiffs will be sent in to seize assets and if the debt is large enough, generally over the £750 threshold, HMRC may even begin proceedings to wind up the business. The first step in this process is to serve what is called a “statutory demand” which will lead to a “compulsory liquidation” if unresolved.

It is therefore vital that any businesses who are having difficulty paying their tax liabilities to HMRC speak to an experienced accountancy firm immediately when they realise they will have problems on this front. It is vital to get out ahead of the problem in order to deal with the very serious difficulty that this poses for your business.

At Lawrence Grant, we are experts in providing solutions that meet your accountancy needs. You can call us on +44 (0)20 8861 7575 and we will be happy to assist you.