The nightmare that is penalties…

20 June 2017

We are at that time of year when daily penalties for the failure to file Self Assessment tax returns are reaching their maximum. Professional fees in fighting these penalties can rise very quickly and if unsuccessful you have a client with not only a penalty but a large fee note as well. Clients should be aware of their filing obligations, but what happens when you believe that you have met those obligations and suddenly are hit with a £1,300 late filing penalty?

This was tested in a recent case where a partnership and two partners had a filing obligation and with the assistance of their advisor filed all the returns by paper by the due date of 31 October. HMRC logged the receipt of the individual’s returns but failed to log the Partnership return and so, following the passing of the normal due date of 31 January, they started raising penalty notices.

Alarm bells should have been sounding at this point, rather than when the penalties reached the £1,300 level, but that is another question. In my experience, it is very difficult for the taxpayer to prove that HMRC have received a particular piece of correspondence. Somebody might be able to prove that they sent it, but proving its receipt or delivery is something else.

In this case, HMRC contended that they never received the return. The taxpayer and their agent insisted it had been sent with the individual’s returns, and, as they had been received, so must the Partnership return. Stalemate was reached and so it was left for the First Tier Tribunal (FTT) to decide.

The FTT considered the facts and as HMRC noted that the individual’s returns had been filed, the FTT accepted the taxpayer’s argument that, it was likely that all returns had been filed on time and that the Partnership return had become detached and lost by HMRC.

The moral of the story is that however you file your tax return, by paper or electronically, keep the filing record as well as a copy of the return, as that is the evidence that will protect you against this level of fine, rather than hope the FTT eventually see it your way!

If you have any queries or would like advice in this area then please contact your local or usual UHY contact.