Mark McLaughlin highlights a case in which the tax payment date preceded the tax return filing deadline and a late payment penalty arose.
For individuals, the normal self-assessment time limits for filing tax returns with HM Revenue and Customs (HMRC) and making the final payment of any tax liability for a tax year are generally the same, i.e. 31 January following the end of that tax year.
Filing and payment dates
In many cases, individual taxpayers also have to make tax payments on account for a particular tax year without knowing their actual liability for that year. For example, if a taxpayer is required to make two payments on account for the tax year 2017/18, they will generally need to do so by 31 January 2018 and 31 July 2018 respectively, each based on 50% of their actual tax liability for the previous tax year (with any balancing payment normally due by 31 January 2019). The January 2018 payment on account is ‘in-year’, and the July payment might also precede completion of the individual’s tax return for 2017/18.
In the above example, an initial late filing penalty of £100 is triggered if the tax return is submitted on 1 February 2019, i.e. only one day late (FA 2009, Sch 55, para 3). Furthermore, an initial late payment penalty of 5% of the unpaid tax arises (under FA 2009, Sch 56, para 3(2)) if the individual’s tax liability for 2017/18 is paid more than 30 days after the due date of 31 January 2019 (e.g. on 3 March 2019).
In some instances, the due date of the balancing payment for a tax year (i.e. 31 January 2019 in the above example) may precede the date on which the tax return is filed for that tax year. This can cause problems in terms of possible interest and penalties for late payment if insufficient (or no) tax has been paid.
In Whittle v Revenue and Customs  UKFTT 16 (TC), the taxpayer was late in filing his tax return for 2013/14. In October 2015, he wrote to HMRC with a complaint about the imposition of late filing penalties, which arose due to the taxpayer’s mistaken belief (based on information apparently on HMRC’s website) that he was not required to file a tax return for 2013/14. HMRC cancelled the late filing penalties and extended the filing date for the taxpayer to submit his tax return for 2013/14 to 31 December 2015. The taxpayer’s tax return was received by HMRC on 14 December 2015, but it did not include a self-assessment of his tax liability. HMRC therefore calculated the liability from the figures in his tax return. However, the taxpayer disputed the liability and did not pay it. HMRC imposed late payment penalties for 2013/14.
The taxpayer appealed, arguing that it had been agreed no penalties were due because of the extension by HMRC of the filing deadline. The First-tier Tribunal (FTT) noted that the statutory due date for payment of the tax (i.e. 31 January 2015) had not been extended. Because of the mismatch between the tax return filing date (as extended) and the payment due date (which was not extended) the due date for payment of the tax fell before the date on which it was calculated. In those circumstances, the tribunal considered that the taxpayer had a ‘reasonable excuse’ for paying the tax after the due payment date.
However, the FTT considered that the taxpayer’s reasonable excuse ceased, at the latest, by the date on which he received HMRC’s calculation of the tax payable. The tribunal could only allow the taxpayer’s appeal on the basis of a reasonable excuse if his failure to pay the tax due was remedied within a reasonable time of his excuse ceasing (FA 2009, Sch 56, para 16(2)(c)). Unfortunately for the taxpayer, he had still not paid the tax due. Any excuse that the taxpayer might have had for not paying his tax by the due date expired a long time ago. His appeal was therefore dismissed.
If it is unclear how much tax will be payable, consideration could be given to setting up a ‘budget payment plan’ with HMRC and making regular payments in advance, to reduce the risk of late payment interest and penalties (see www.gov.uk/pay-self-assessment-tax-bill/budget-payment-plan). Alternatively, the ‘certificate of tax deposit scheme’ allows money to be deposited with HMRC and used later to pay certain tax liabilities (see www.gov.uk/guidance/certificate-of-tax-deposit-scheme). For the future, as part of its ‘making tax digital’ plans, the government intends introducing ‘voluntary pay as you go’ to offer businesses, the self-employed, and landlords the option to make flexible payments to HMRC through a digital platform.
This article was first printed in Tax Insider in June 2017.