With a third of tax returns still outstanding a week before deadline, taxpayers should not rely on a “reasonable excuse” and get theirs in on time or it could cost them money.
Those who miss the deadline on 31 January will incur in an automatic £100 penalty, and it will get worse if over time they continue to ignore their tax obligations. However, taxpayers who have a genuine reason why they cannot file their tax return on time can contact HM Revenue & Customs ("HMRC") to seek an extension without penalty.
Jessica McLellan, director at Blick Rothenberg, said: “It is rare, but HMRC can cancel the penalty at their discretion if the taxpayer can offer a reasonable excuse as to why they didn’t file their tax return by the deadline. The burden of proof will be with the taxpayer to demonstrate that they took all steps necessary to file their tax return on time. The question then is what do HMRC consider as a reasonable excuse?
“A reasonable excuse is not specifically defined by law and an HMRC officer would look at each case, but some genuine excuses accepted in the past include a recent bereavement of a close relative, being in hospital, a life threating illness, a fire or flood, or problems with HMRC’s online services.”
However, every year, following the 31 January Self Assessment deadline, HMRC receives a number of imaginative and intriguing excuses for not completing tax returns on time. Some past examples include:
- I couldn’t file my return on time as my wife has been seeing aliens and won’t let me enter the house
- I’ve been far too busy touring the country with my one-man play
- My ex-wife left my tax return upstairs, but I suffer from vertigo and can’t go upstairs to retrieve it
- My business doesn’t really do anything
- I spilt coffee on it
Jessica added: “Forgetting about it, relying on someone else to do it, not getting a reminder from HMRC or simply thinking the deadline was another date are not valid excuses either.”
The penalties start automatically at £100 for those who miss the 31 January deadline and are up to three months late. After three months, HMRC will start charging penalties of £10 per day and after six months the penalty will be 5% of the person’s tax or £300 – whichever is higher. Within six months, it could rack up to at least £1,300.
Things become even more serious if a tax return is more than 12 months late and penalties can be as much as 200% of the tax owed. Some of these penalties will be charged even if the person doesn’t actually have any tax to pay.
Jessica said: “As well as creative excuses, HMRC also receives some questionable items which taxpayers have tried to expense. It is equally important to get a tax return right and mistakes are widely seen, particularly in the expenses section.”
Some widely optimistic expense claims received by HMRC include:
- A three-piece suite for my partner to sit on when I’m doing my accounts
- Birthday drinks at a Glasgow nightclub
- Vet fees for a rabbit
- Hotel room service – for candles and prosecco
- £4.50 for sausage and chips meal expenses for 250 days
Jessica added: “Whilst we are concerned about the nutritional value of someone eating sausage and chips for 250 days of the year, these examples are clearly not allowable business expenses and were rejected by HMRC. Taking money from a business to pay for personal purchases is not deductible either. Allowable expenses are genuine business costs such as stationery, train or bus fares, staff salaries or payments to subcontractors, etc.
“If something is used for both business and personal reasons, then only the proportion of business cost can be claimed. For example, if phone bills for the year total £2,000 and an individual spends £500 on personal calls and £1,500 on business, they can only claim for £1,500 of business expenses.”
For more information please contact Jessica McLellan