You’ve recently read that you can be fined if you owe tax for 2022/23 and don’t tell HMRC about it by 5 October 2023. Is this right and if so what steps can you take to avoid a penalty?
Penalty powers
HMRC has many powers it can deploy to encourage tax compliance. For example, the “failure to notify” rule requires any individual or trustee who owes income tax, capital gains tax (CGT) or NI to notify it within six months of the end of the tax year, i.e. 5 October. Failure to notify can result in a penalty equal to as much as 100% of the tax liability. Example. Dougie inherits a flat which he first lets out in September 2022. He must notify HMRC of the letting income by 5 October 2023.
Exceptions
A penalty doesn’t apply if all your income or gains fall within one or more of the following categories:
- the income is subject to PAYE tax
- the income is usually included in your tax code, e.g. benefits in kind, expenses and state pension
- the income is received from a casual activity and no more than £1,000 p.a.
- dividends where the total you receive is no more than £2,000 (this limit reduces for later years)
- sufficient income tax has already been deducted at source to meet the new tax bill
- capital gains are covered by an exemption, e.g. the annual exemption of £12,300 (for 2023/24 the exemption has reduced to £6,000).
Tip. HMRC now accepts that becoming a director no longer requires you to notify for this reason alone.
Tip. Although technically not a tax charge, recent changes in the rules mean that the high income child benefit charge (HICBC) must be notified.
Past interaction with HMRC
Even where you owe tax, you don’t need to notify HMRC where it has asked you to complete a tax return or issued you with a simple assessment which includes all your taxable income and gains.
Trap. HMRC must still be notified if a notice to file has already been withdrawn but you are liable to pay extra tax after all.
How to notify
You should notify HMRC by registering online to receive your Unique Taxpayer Reference (UTR). The UTR is then used to file a tax return, with the 2022/23 deadline being 31 January 2024 (31 October 2023 for paper returns). Sole traders and partners can use Form CWF1 to notify.
Tip. There is always a period of three months to file a tax return after HMRC requests it, so the filing deadline may actually be after 31 January 2024.
Late notification
If you miss the October deadline you can still avoid a penalty by paying any amounts you owe by 31 January 2024. Of course, if there is nothing to pay, e.g. your profit was low and below the tax and NI thresholds, there can be no penalty. Where you are late in notifying and also haven’t made payment by 31 January 2024, all is not lost where you have a reasonable excuse.
If you owe tax for 2022/23, but you haven’t been asked to complete a tax return for that year or received a simple assessment, you must notify HMRC by 5 October. If you miss the deadline, paying the amount owed by 31 January 2024 will cancel any failure to notify penalty.
The next step
HMRC’s guidance on reasonable excuses
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.