If you’re a small business owner, you know that failing to file your corporation tax return on time can result in Corporation Tax Late Filing Penalty. In fact, if you haven’t filed a return within the required time frame, you could end up with a penalty of up to 20% of your tax bill. The good news is that there are ways to avoid a Corporation Tax Late Filing Penalty. You can follow a few simple steps that will help you ensure that your company is in compliance.
Accounting reference date
One of the most important dates for a limited company is the accounting reference date. This is the date that determines the last day on which the annual accounts of the company are to be delivered. If your company misses this date, it will be subject to a financial penalty from both Companies House and HM Revenue & Customs (HMRC). However, there are some things you can do to avoid these penalties.
If you want to change the accounting reference date for your company, you must apply to Companies House using form AA01. Once your application is accepted, you must submit your accounts within time limit set by the new date. If you miss the deadline for Companies House, you will face a £150 fine. If you miss the deadline for HMRC you will face a fine that starts at £100.
For both Companies House and HMRC the ultimate fine payable will depend on how long you are late for. See further below for all the penalties associated with HMRC corporation tax late filing.
It is important to remember the Accounting Reference Date as it determines the deadline for filing your company’s annual accounts with Companies House and HM Revenue and Customs. You can shorten the accounting reference date of you company if you wish. You can also lengthen the accounting period for your company. Once every five years, you can extend the accounting period to up to 18 months.
Shortening and lengthening the accounting period of a company is one of the reasons companies incur a late filing penalty. This is because a company can forget that changing the accounting reference date has caused the filing deadline to change.
Corporation tax late filing penalties
The failure to file accounts and corporation tax return on time will attract late filing penalties. The penalty can range from £100 to 20% of the tax due. In addition, any tax paid late will be subject to interest charges from HMRC.
The penalties for late filing of corporation tax return depends on how long you are late.
If you are late for a day the penalty is £100.
If you are late for three months, the penalty is another £100.
If you are late for more than six months HMRC would estimate your tax liability and add 10% percent penalty to it.
If you’re late for more than 12 months, you will be charged another 10% of the tax due. if you’re late in submitting your account for three consecutive years the £100 penalties will become £500 for each of the 1 day and the 3 months lateness.
Reasonable excuse
A taxpayer can appeal against corporation tax late filing penalty if they believe that they have a reasonable excuse.
If you are unsure whether or not you can claim a reasonable excuse for corporation tax late filing penalties, it’s best to contact HMRC. They have recently updated their guidance to clarify when a reasonable excuse can be used to avoid late filing penalties.
The test of a reasonable excuse is subjective. In most cases, a taxpayer must provide sufficient evidence to show why they were unable to meet their filing obligations on time. If this is the case, it is likely that HMRC will find in accept the taxpayer’s appeal and cancel the penalty.
However, HMRC may take a different view, particularly if the facts of the case mean that the excuse was not objectively reasonable. For example, a taxpayer with an illness which took up a lot of their resources could have a reasonable excuse.
How to avoid a corporation tax late filing penalty.
A company must file a corporation tax return with HMRC if it receives a “notice to file a corporation tax return. The deadline for filing this corporation tax return is 12 months after the end of its accounting year end date, also commonly referred to as the accounting reference date.
To avoid a corporation tax late filing penalty, a company and its directors should submit accounts and corporation tax return before its filing deadline. Failure to do so will result in a late filing penalty. Of course, as mentioned previously if a company has a good excuse for filing its accounts and tax return late it could appeal against the late filing penalty after it has submitted the late accounts and corporation tax return.