Tax monopoly

Self Assessment deadline day is approaching fast, which means time is ticking if you’re one of the millions of small business owners that still hasn’t filed their tax return.

UK business owners must submit their Self Assessment tax return to HMRC by midnight on January 31st or face an automatic penalty of £100 for late filing. But while the majority of filers will beat the deadline, there is still a large number who won’t - and HMRC estimates that around a million or so small business owners fail to file their tax returns in time each year.

So if you’re one of those who is likely to miss the deadline this year, is there anything you can do to avoid incurring the £100 penalty?

What is a “reasonable” excuse?

According to HMRC, a 'reasonable excuse' is “when some unforeseeable or unusual event beyond your control has prevented you from filing your return on time”. They highlight potential occasions such as the following as fitting this criteria:

  • When there’s a failure in the HMRC computer system that prevents you from filing
  • When your computer breaks down just before or during the preparation of your online return
  • When you contract a serious illness, disability or serious mental health condition that makes you incapable of filing your tax return
  • When you have registered for HMRC Online Services but didn't get your Activation Code in time to submit your tax return before the deadline.
Anything aside from these reasons is unlikely to be considered - especially if it’s an excuse that is clearly your problem rather than an unforeseen technical, medical or geographical circumstance. So that means you won’t be able to use something like “my dog ate my tax return” or “my sister used to do my taxes but we’ve fallen out” as a valid reason for not filing your return (both of which were genuine excuses that people tried to give to HMRC in the past).

What if my business was affected by flooding?

Excuses accepted by HMRC in the past have included when important documents have been lost, through theft, fire or flood, and can’t be replaced before the Self Assessment deadline passes. So if adverse weather has affected your business and your ability to file, you should contact HMRC and check that they will accept this as a valid reason for missing the deadline.

In the specific case of the recent UK floods arising from storms Eva and Desmond in December, HMRC has said that businesses who are affected by these conditions and, as a result, unable to file their tax returns will not be charged the penalty. Similarly, business owners should not be charged the penalty if their accountant’s premises were flooded.

HMRC has even set up a special helpline for those affected, where you can find more information.

You’ll need to prove your circumstances

Remember, the examples above (apart from the flooding) apply if they actually prevented you from filing your return on time when you otherwise would have done. HMRC are unlikely to be lenient if they believe that you are at fault for missing the deadline.

It’s therefore advisable to not only show proof of your situation to them, but also demonstrate that you have made some effort to overcome the problems, as HMRC will review each case on merit to decide whether it is a “reasonable” excuse or not.

If in doubt, speak to your accountant and get their advice on whether you have a valid excuse for missing the filing deadline or not, or contact HMRC directly to explain your circumstances. Just be prepared for the bad news that your excuse isn’t acceptable; and have £100 ready to pay the fine as soon as possible, so you don’t face any additional penalties down the line.

You’ll still have to file!

Even if HMRC accepts your excuse and allows you to file your tax return late, remember this isn’t an indefinite reprieve. You’ll still need to file your return as soon as you can, and you’ll also need to pay the tax that you owe too!

Check with HMRC to find out exactly how long your deadline extension is and make sure you submit your tax return by that date, otherwise you’ll start to incur penalties.

By Emily Coltman FCA, Chief Accountant to FreeAgent