To reduce the chance of being charged a penalty by HMRC, if a business, or a partner of a business is going to struggle to pay their tax liability they should contact HMRC’s Business Payment Support Service (BPSS) as early as possible to try and set up a time to pay agreement.
If HMRC allows extra time to pay, they will not charge a penalty for any payments made late during the period covered by the time to pay arrangement provided the person complies with the terms of the arrangement, or any variation of those terms that are later agreed with HMRC. A penalty may be charged for a payment made late before HMRC have been approached but this can be incorporated into the terms of the arrangement.
A late tax payment or late tax filing penalty will not be chargeable if the taxpayer satisfies HMRC or (on appeal) the Tribunal that there is a reasonable excuse for the failure and that the failure was rectified as soon as the excuse came to an end.
There are two situations which statutorily cannot be reasonable excuses. Theseare:
- lack of funds – unless this is due to unforeseen events outside the person’s control; and
- reliance on another person – unless the person can show they took reasonable care to make sure the other person completed what they were asked to do.
In HMRC’s opinion these may count as a reasonable excuse:
- the taxpayer’s partner or another close relative died shortly before the tax return or payment deadline;
- the taxpayer had an unexpected stay in hospital that prevented them from dealing with their tax affairs;
- the taxpayer had a serious or life-threatening illness;
- the taxpayer’s computer or software failed just before or while preparing their online return;
- service issues with HMRC online services;
- a fire, flood or theft prevented the taxpayer from completing their tax return;
- postal delays that could not be predicted; or
- delays related to a taxpayer’s disability.
In HMRC’s opinion these will not be accepted as a reasonable excuse:
- the taxpayer’s reliance on someone else to send their return and they did not;
- the taxpayer’s cheque bounced or payment failed because they did not have enough money;
- the taxpayer found the HMRC online system too difficult to use;
- the taxpayer did not get a reminder from HMRC; or
- the taxpayer made a mistake on their tax return.
HMRC can reduce a penalty for special circumstances. The legislation does not define what constitutes special circumstances but does specifically exclude inability to pay and the compensation of potential loss by another taxpayer’s potential overpayment. HMRC manuals unsurprisingly indicate that the provision will be used sparingly. If the officer does not apply any special reduction, the taxpayer can appeal to the Tribunal against that decision. However, the Tribunal can only substitute its own decision for that of the HMRC officer if the officer’s decision process was flawed. It cannot simply override the officer’s conclusion.
Please do get in touch if you need help with anything we have discussed here.