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Penalties incurred for late filing of forms

Setting up as a director of your own limited company to run your contracting means you are subject to company and tax law. If you’re not careful, missing strict reporting and filing deadlines could cost you thousands of pounds.

You need to be mindful of both your administrative responsibilities and the penalties chargeable by various authorities if you do not file your returns in good time.

Here we run through the various returns that you need to file on behalf of your company and the tax penalties incurred for late filing.

What are the penalties for filing a Corporation Tax return late?

A company is penalised when it fails to deliver its Corporation Tax return within 12 months of its accounting period, otherwise known as its financial year.

Though the penalty for a first offence is relatively modest, repeated failure to file your Corporation Tax return on time can rack up substantial fines:

  • Late filing up to three months incurs a £100 fine
  • Another £100 is added if you exceed three months
  • After six months, HMRC will estimate your Corporation Tax bill and add a penalty of 10% of the unpaid tax
  • After 12 months, another 10% penalty will be issued

Failure to file your return on time three years running will see the £100 penalties each increased to £500.

Penalties for late VAT returns

The deadline for submitting VAT returns tends to be one month and seven days after the end of the company’s accounting period.

Failure to submit either your VAT return or full payment of the VAT due by the deadline will lead to a penalty known as a default surcharge. It also means you will enter a 12-month ‘surcharge period’.

Your surcharge rate increases every time you default, and can vary between 2% and 15%.

HMRC can also issue further penalties in the following circumstances:

  • 100% of tax under-stated or over-claimed if a return contains a deliberate or careless inaccuracy
  • 30% of an assessment if HMRC send you one that’s too low and you fail to correct them within 30 days

Penalties for late filing with Companies House

You are required to file your company’s annual accounts within nine months of your company’s financial year end. The penalties for late filing are as follows:

  • Up to one month - £150
  • One to three months - £375
  • Three to six months - £750
  • More than six months - £1,500

Beware that if your accounts are filed late two years in a row, your penalty will be doubled. You can appeal against a late filing penalty, but you’ll have to prove that the circumstances were outside of your control.

What are the penalties for late Self-Assessment tax returns?

You may draw the majority of your income through dividends, but you’ll still be required to report any personal income through your self-assessment tax return.

This needs to be filed by 31 January following the year of assessment if completed online, or by 31 October if submitted by post. If you make payments on account, you have an additional deadline to remember, which is 31 July.

The penalties for failing to meet a deadline are as follows:

  • £100 fine for late filing between one day and three months
  • Fine increases after three months

HMRC provides a service whereby you can estimate your penalty if you are more than three months late on your self-assessment tax return.

A fine can be avoided if there is a reasonable excuse, such as a fire, flood or theft prevented you from completing your tax return. HMRC issues guidance on reasonable excuses online.

How to avoided penalties for late filing of tax returns

Penalties for late filing of a Corporation Tax, VAT and Companies House return can easily be avoided by using an umbrella company solution, rather than running your own limited company.

However, this trading vehicle isn’t as tax-efficient, and the large majority of contractors would gladly take on the administrative burden of running a limited company in order to increase their take-home pay.

Running your own limited company means there is no escaping keeping up-to-date with all of the various returns and dates for which you are responsible. A good accountant will significantly reduce the burden for you, and cloud-based solutions are increasingly evolving to simplify administration for contractors.

However, it will always be your responsibility to ensure that they have all the information needed to complete the returns for you, since you are the company director and ultimately the buck (and fines) stop with you.

Updated: 13 June 2017

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