HMRC fines contractors for unpaid tax bills

Friday 1 March 2013

Fines for unpaid tax bills are being distributed to contractors around the UK this weekend.

Self-assessors who had not settled their tax bills 30 days after the January 31st deadline will be receiving penalties for five per cent of the total tax they owe.

If the balance is not paid within six months, another fine of a further five per cent will follow on top of the penalties already incurred, and the same again after a year.

Since HMRC adds interest to outstanding sums, self-employed workers may find themselves liable for rapidly growing bills.

For many contractors and freelancers, the self-assessment process can often be time-consuming and confusing, leaving many struggling to complete the paperwork on time and in good order.

A recent YouGov poll found that a fifth of micro-businesses were worried about completing their returns, while less than four out of ten said that they felt confident about the process.

HMRC confirmed in early February that they had sent out 850,000 fines of £100 each to self-assessors who had not submitted their returns in time. In the week following the deadline, a further 60,000 were submitted, but this left a further 790,000 accruing fines of £10 for every day their forms had not been received.

Though the number of fines issued at the 30-day mark has not yet been confirmed, a significant number of contractors and freelance workers are expected to have fallen foul of the taxman.

Once it receives the return, if HMRC disagrees with an individual’s calculations it can send out its own calculation in writing, which might be considerably higher than the taxpayer was expecting. If, however, that calculation is not challenged by contacting HMRC, it is used to calculate the self-assessment statement that asks for payment.

As a result, some contractors find themselves faced with bills that are simply unaffordable - and the time it can take them to find the money incurs more interest. Since HMRC does not count the inability to pay among its “reasonable excuses” on appeal, this can frequently make the problem worse.

Options are open to appeal tax decisions if a bill looks too high. HMRC will always inform taxpayers of their right to appeal along with a decision, as well as offering guidance on the appeals processes available.

The newest option is the Alternative Dispute Resolution service (ADR), which brings the differing parties in a tax dispute together with a specially trained mediator not previously involved in the case. This arbitrator then works to negotiate an agreement.

Because the service does not affect taxpayers’ existing appeal rights, they can apply for ADR while preparing to go to a tribunal. Contractors and small businesses, however, are expected to benefit from the reduced time and expense involved in the new service.

It can be very difficult for contractors to maintain their own tax affairs effectively, Brookson has launched a free guide on how to deal with unexpected tax bills, you can download this here. The guide contains information on how the bills might arise, the guide also offers advice from Brookson’s accounting experts on what contractors and sole traders should do if they find themselves facing bills and fines, as well as tips to prevent similar problems from happening in the future.

By Victoria McDonnell

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