HMRC will be issuing automatic £100 penalties to those who fail to file Self Assessment and pay any tax due by the end of Wednesday, but many people don’t know that this can be challenged if you have a reasonable excuse for missing the deadline. One tax reform group is strongly urging taxpayers who miss the filing deadline but who have a reasonable excuse for the delay, to challenge their penalties for late filing without delay.

The Low Income Tax Reform Group (LITRG) says that it remains keen to support HMRC’s efforts to encourage people to file returns and pay tax due from them by the proper date, and has published articles and guidance on its website. But the campaign group is very concerned that some of those who for good reason do not meet the deadline, and receive a penalty in consequence, may be totally unaware that they can challenge it.

LITRG is reminding taxpayers that there could be extenuating circumstances where someone may be able to avoid a penalty by claiming what HMRC define as a ‘reasonable excuse’ for filing their tax return late. These could include flooding or severe weather problems, but also life events such as serious illness or bereavement, and other causes beyond the taxpayer’s control.

LITRG Technical Director Robin Williamson said: “It is important that people are aware of their rights as well as their obligations, and are not alarmed unduly if contacted by HMRC. There is a danger that people may feel panicked by penalty notices from the tax office and just pay financial sanctions for filing Self Assessment forms late, without considering that there may be a legitimate reason for their delay in filing that may make them eligible for special treatment.”

Even if a reasonable excuse is established, the taxpayer must file without unreasonable delay once the excuse has ceased, LITRG points out. For example, if illness prevented them from filing on time, they must file as soon as reasonably practicable when they recover from their illness. It may be that a combination of reasons, rather than a single reason, together may constitute a reasonable excuse. In all cases full details must be sent to HMRC.

An online copy of the form that may be submitted with a late tax return, claiming reasonable excuse, can be found on the GOV.UK website. If someone has received a penalty notice, an appeal notice will usually accompany it but, if not, a form SA370 Appeal can be downloaded from the GOV.UK website. People can also send in a letter to make an appeal. They must do this within 30 days of the penalty decision.

HMRC should then offer a review of the penalty decision. But it is important to remember that HMRC are not the final arbiters of any dispute between them and taxpayers, and if someone disagrees with the outcome of HMRC’s review of their penalty, they can ask the tax tribunal to hear their appeal as long as they do this within 30 days of the review decision.

Aside from late filing penalties, HMRC may also charge a penalty if a taxpayer submits an inaccurate return to HMRC which results in them understating their liability to tax or claiming too much by way of loss relief or repayment of tax. It typically amounts to 15% of the tax understated. For a penalty to be properly chargeable, the mistake must be ‘careless’ or deliberate.

‘Careless’ indicates they have failed to take reasonable care, but what constitutes ‘reasonable’ care depends on the individual’s particular circumstances and abilities. For example, a mistake which may be deemed reasonable for a pensioner with no prior knowledge of the tax system may not be thought reasonable if perpetrated by a qualified lawyer or accountant.

If a mistake is not careless but a genuine error made while exercising reasonable care, HMRC are not entitled to charge a penalty at all. This is the case even if their tax liability is understated as a result of the error.

Robin Williamson said: “If someone who is charged a penalty for inaccuracy in their return believes their mistake was not careless as defined by HMRC, but an honest mistake despite taking reasonable care, then they should contest the penalty notice.”

Self Assessment returns must be filed and any tax due paid by midnight on Wednesday 31 January. If your accountant is filing for you it is still your responsibility to make sure it is done. Contact your accountant and ask them to confirm submission.

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