So you’ve received a HMRC penalty and you’re freaking out just a little bit. Whether this was intentional or by accident, an HMRC penalties notification can be a stress-inducing event. But let’s talk about what you can do now that you’re here. Firstly we will look whether you have a reasonable excuse (as defined by the HMRC), and if not, we’ll look at how you can get your penalties reduced as much as possible.
HMRC Penalties
There are various HMRC penalties that you may be fined with. You might be thinking to yourself “How do I get out of a late filing penalty?”. This may vary depending on your situation as penalties differ and includes Failure to File, Failure to Pay and Failure to notify. A failure to file penalty is raised when you have failed to file your tax returns (corporate tax returns or self assessment) by the deadline provided by the HMRC.
A failure to pay penalty is raised when you’ve submitted your tax returns but failed to pay the tax you owe by the stipulated date. It is important to note that if you cannot afford the tax that you owe, it’s best to let the HMRC know immediately so that you can work collaboratively in setting up a suitable payment plan.
Lastly, the failure to notify penalty is raised when you fail to notify the HMRC within the stipulated time that you are required to pay tax. To see a detailed explanation of what failure to notify is all about you can check out our Failure To Notify blog post.
HMRC leniency for Penalties
His Majesty’s Revenue and Customs is not an unreasonable institution. Therefore, there is leniency offered to individuals and companies with a reasonable excuse for not filing, paying or notifying them. However, it is important to be aware of what the HMRC considers “reasonable”.
Reasonable Excuses
A reasonable excuse will only be accepted if you took reasonable care and planned to have your taxes submitted and/or paid by the deadline but were interrupted by circumstances out of your control. So what is a reasonable excuse? The HMRC lists the following as reasonable excuses:
- Death of a loved on (Partner or close relative)
- Emergency hospitalisation
- Serious or life-threatening illness
- Computer or software failure while submitting or filing tac returns
- Service issues with HM Revenue and Customs (HMRC) online services
- Natural Disaster or unplanned circumstances (Fire, flood or theft prevent)
- Postal delays that you could not have predicted
- Delays related to a disability or mental illness you have
- You were unaware of or misunderstood your legal obligation
- You relied on someone else to send your return, and they did not
However, these reasonable excuses will only be taken into account if you notified the hmrc as soon as possible after resolving whatever prevented you from fulfilling your obligation and seeked to rectify the situation as soon as possible.
If you have a reasonable excuse, the HMRC will not give you a penalty on the condition that you provide them with proof.
How can I reduce my penalty?
So there are a few ways you can reduce your penalty, and most of them require transparency and honesty. There are four main ways to negotiate for a reduced penalty which include: Notifying them willingly about your situation, assisting them in determining what your penalty needs to be, providing them access to your financial documents and negotiating with the HMRC
1. Unprompted Disclosure
As soon as you realise that you are liable for any type of penalty, it is advised that you contact the HMRC immediately. When an unprompted disclosure is made, the chances are that they will be more lenient with your penalty. In fact, they can reduce your penalty up to 30% just for disclosing it willingly!
2. Assist them with determining your penalty
Gather as much documentation as you can to provide to the HMRC after you’ve disclosed. This includes all forms of income including PAYE income, self employed income, foreign income etc. It is important that you disclose this information as soon as possible and assist them in determining the penalties you need to pay.
Reason for failure to notify | Type of disclosure | Penalty |
Reasonable excuse |
| No penalty |
Not deliberate | Unprompted | 0%-30% within 12 months: after that 10%-30% |
Not deliberate | Prompted | 0%-30% within 12 months; after that 20%-30% |
Deliberate | Unprompted | 20%-70% |
Deliberate | Prompted | 35%-70% |
Deliberate and concealed | Unprompted | 30%-100% |
Deliberate and concealed | Prompted | 50%-100% |
3. Give them Access to your Financial records
Another great way to have a reduction in your penalty is by providing them with your financial documentation and history for the period that you are eligible for a penalty. This is any statements. Financial reports that can be extracted from your accounting software. Even a bookkeeping spreadsheet like the one CIGMA accounting offers can help them to sort out your penalties.
4. Negotiating with the HMRC
You might be wondering whether you can negotiate with the HMRC for tax debt. And the answer is yes. You can negotiate with HM Revenue and Customs. However, doing it on your own may be challenging. That’s why we recommend that you reach out to an accountant as soon as possible to negotiate with the HMRC on your behalf.
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At CIGMA Accounting we deal with clients’ HMRC penalties all the time. Just because we are a London based accounting firm, does not mean we only help London-based clients. We help clients all over the UK to resolve their penalties. If you need any assistance with this, please reach out to us as soon as possible!
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