Know what to watch out for and what to do to avoid them. 
Put simply there are two main reasons for penalties, being late and being wrong. These then have interest added to them. 
Corporation Tax 
Failure to notify chargeability (Not telling HMRC that you are trading) 
The penalty is charged as a % of the amount of the Corporation Tax which is unpaid 12 months after the the end of the accounting period as a result of the failure to notify. (FA 2008 Sch 41 para 7(3) 
The penalty varies depending on how the taxpayer acts and whether they make a voluntary disclosure or are prompted by HMRC, i.e. a nudge letter or investigation 
Maximum Minimum Minimum 
Penalty Unprompted Prompted 
Deliberate and concealed 100% 30% 50% 
Deliberate but not concealed 70% 20% 35% 
Any other case 30% 0 – 10% 10% - 20% 
The penalty can be avoided is there is a reasonable excuse or can be reduced if special circumstances apply. (in practice this is hard to do) 
Penalties for late returns 
Immediate £100 where the return is filed late: plus 
Potential £10 per day for up to 90 days: plus 
Penalty of 5% of the tax or £300 which ever is greater if less than 6 months late 
Penalties for failure to keep records or provide documents 
A penalty of £3,000 per accounting period where there has been a failure to keep records for 6 years from the end of the accounting period. 
Failing to provide documents for the purpose of an enquiry is £300 and if the failure continues penalties of up to £60 per day may be imposed. 
Penalties for incorrect returns 
The penalties are a % of the lost revenue: 
Behaviour Maximum Minimum Minimum 
Penalties Unprompted Prompted 
Deliberate & concealed 100% 30% 50% 
Deliberate not concealed 70% 20% 35% 
Careless 30% 0% 15% 
Penalties for careless errors may by suspended for two years. 
Penalties for late payment of Corporation Tax 
5% is charged in respect of each of the following: 
Tax outstanding after the filing date 
Tax outstanding more than 3 months after the filing date 
Tax outstanding more than 9 months after the filing date 
If the taxpayer has entered into an agreed time to pay arrangement late penalties are not charged. 
As with all penalties, they are payable within 30 days of the assessment being raised and interest will be charged on this and the outstanding balance. 
What can we learn from this? 
Talk to an accountant and get them to notify HMRC, preferably before you start to trade. 
Keep good records and keep then safe and secure for 6 years after the end of the accounting period. 
Check your records are accurate. 
Pay any tax due within the time limit, as we see above the penalty can rise to 15% plus interest. 
If there are cashflow issues speak up early and make sure HMRC are notified to avoid the above penalty. 
That is why it is essential to prepare the accounts and tax return soon after the end of the accounting period and not delay until the last minute. 
All the above penalties can easily be avoided with a little planning and care. 
Tagged as: HMRC Penalties
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