Specialist medical accountant Vanessa Sanders warns doctors to watch out for the expensive penalties.
Late filing or submission penalties
Failure to comply with HM Revenue and Customs (HMRC) rules will result in financial penalties based on a points system – and that’s added to late payment charges at increasingly stringent percentages of your taxes outstanding.
And we all know that once we start submitting quarterly figures, payment of taxes more regularly is not far behind.
A taxpayer becomes liable to a fixed penalty of £200 upon reaching the points threshold. The threshold depends on the failure of submission frequency:
- Annual accrual, 2 points;
- Quarterly, 4 points;
- Monthly, 5 points.
The points incurred will expire after 24 months, providing the taxpayer remains below the threshold. Once the threshold is reached, all points will expire if the taxpayer meets their return obligations for a set period of time.
This period is based on their submission frequency:
- Annually, 24 months;
- Quarterly, 12 months;
- Monthly, six months.
If the taxpayer continues to miss deadlines after they reach the points threshold and been issued with a penalty, they will become liable for further fixed rate penalties as additional obligations are missed.
There is a right of appeal against both points and penalties. A taxpayer will not be liable if a reasonable excuse for not submitting on time is provided, but that has never included being too busy with a job and a private practice to run. Believe me, I have tried to argue the toss.
Late payment penalties
Added to the late filing penalties are separate fines for late payment. There will be no penalty for tax paid late but within 15 days of the due date.
The first penalty thereafter is set at 2% of the outstanding amount if payment is made between 16 and 30 days after the due date, increasing to 4% of the outstanding amount if tax is left outstanding 30 days after the due date.
A second penalty is charged at 4% per annum, calculated on a daily basis on the total amount outstanding after day 30.
To avoid or reduce penalties, the taxpayer can approach HMRC to agree a Time to Pay Arrangement. The approach is likely to have to be made in person and usually involves discussion of affordability.
Our experience shows that HMRC has little sympathy for what they may consider to be extravagant lifestyle choices, such as private school fees, expensive vehicle lease payments and an unwillingness to cash in ISAs.
HMRC can access massive amounts of data from employers, banks (overseas included), credit card companies, share dealings, land registry, passport control and others – and it is using this knowledge to open ‘aspect inquiries’ looking at specific items, including overseas income and affordability of lifestyle.
If it can be shown that you were negligent in failing to meet your obligations, then penalties will be imposed.
As a doctor, the bar of compliance is higher than for, say, a manual worker, as you are expected to understand what you are returning on your self-assessment form or, if you do not, to take proper advice.
Do not forget that the relationship as a taxpayer is between you and the HMRC, not your adviser and HMRC. If you do not understand an entry on your return, the onus is on you to seek an explanation.
Vanessa Sanders (right) is a partner with Stanbridge Associates, accountancy, finance and tax advisory specialists