Corporation Tax & HMRC Penalties and Appeals Explained
All UK companies and foreign companies with offices based in the UK are required to pay corporation tax on their profits to HMRC at rates varying according to the level of profits.
Currently, the rate of corporation tax of 19% for companies earning profits under £50,000 is generally applicable, and a main rate of 25% applies to companies with profits in excess of £250,000. Between those two figures, marginal rates apply together with a sliding scale.
Naturally, all liable entities are obliged to strictly comply with their Declaration and Payment obligations and any default will result in HMRC imposing a variety of penalties.
Naz Maqzoom of KANGS comments upon the payment of the tax, penalties which may be imposed in default and the right of appeal against HMRC decisions.
Payment of Corporation Tax
There is no threshold in respect of corporation tax liability as companies do not receive any form of tax-free allowance. Even if not incorporated, HMRC states that, amongst other things, the following are liable to Corporation Tax:
- members clubs, societies and associations,
- trade associations,
- housing associations,
- co-operatives,
- community groups.
Before paying Corporation Tax, a Tax Return must be filed with HMRC, detailing, earnings, losses and loans enabling HMRC to assess the amount due and issue a Corporation Tax Bill.
In respect of taxable profits of up to £1.5 million, Corporation tax must be paid within 9 months and 1 day after the end of a business’s last accounting period, which is usually its accounting year.
Other deadlines apply for profits between that maximum and £20million and for profits in excess of that figure.
Failure to meet the deadline for payment of corporation tax will result in the following penalties becoming payable:
| Time After your deadline | Penalty |
|---|---|
| 1 Day | £100 |
| 3 Months | Another £100 |
| 6 Months | HMRC will estimate your Corporation Tax bill and add a penalty of 10% the unpaid tax. Otherwise known as a ‘tax determination.’ |
| 12 Months | Another 10% of any unpaid tax |
Failure to file and pay in compliance with HMRC’s deadlines three times in a row will result in the penalties of £100 increasing to £500.
Alongside the flat rate penalties described above, a company or business may also be liable for further tax related penalties should it fail to provide its Companies Tax Returns within eighteen months in one of the following ways:
- 10% of the unpaid tax where a return is delivered within two years of the end of the period covered by the return.
- 20% of the unpaid tax in any other case.
In the event of failure to pay, HMRC has the power to effect recovery by, inter alia:
- court action attaching the debt against bank accounts, earnings or pension,
- instructing debt collectors to recover the money,
- selling assets,
Should it be deemed necessary, HMRC may inspect company documents and records under schedule 36 Finance Act 2008.
Tax Penalty Appeals
In the event of a reasonable excuse being available, an appeal against penalties for late filing of Tax Returns is available. However, a Corporation Tax Return must have been filed.
An Appeal may also be made against the Penalty Determination in writing to HMRC within thirty 30 days after the issue of the penalty.
How Can KANGS Help?
Should you receive notification from HMRC of its intention to conduct any form of investigation or seek to enforce a financial penalty of any nature relating to any alleged default relating to payment of any form of tax due, it is essential that immediate expert professional advice and guidance is sought.
The Team at KANGS provides extensive experience and expertise gained from representing clients, both individual and corporate, facing HMRC enquiries of every conceivable nature.
Should you require assistance, our Team would be delighted to hear from you.
Tel: 0333 370 4333
Email: info@kangssolicitors.co.uk
We provide initial no obligation discussion at our three offices in London, Birmingham, and Manchester. Alternatively, discussions can be held through video conferencing or telephone.
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