Q: I have a client with complicated affairs who unexpectedly passed away quite recently. As a consequence, I am unlikely to be able to arrange for submission of his 2019/20 self-assessment tax return by the filing deadline of 31 January. I also have other clients for whom I will be unable to file their return for a variety of reasons. What are the potential penalties that would arise and any opportunities for mitigating these, particularly in the case of a deceased client?

A: The potential late return penalties are structured as follows:

• a £100 fixed penalty which arises regardless of whether any tax is actually due or unpaid at the date due;
• daily penalties of £10 per day which start to accrue after three months, subject to a maximum of £900;
• after 6 months of default, an additional penalty of 5% of the tax due or £300, if greater; and
• if still outstanding after12 months, a further 5% or £300, whichever is greater.

In the case of the deceased client, HMRC policy is not to impose late filing penalties where the taxpayer has died before the return due date.

This is on the basis that HMRC ‘cannot show that the person on whom the notice was served has incurred any penalty because he or she died before it became due’. This is  explained in HMRC’s self assessment manual at paragraph SAM61270 and especially SAM99010 which covers agreeing an extended filing deadline.

HMRC should be made aware of the situation and the return then subsequently filed when possible.

Remember that penalty notices are automatically generated and so it is likely that an appeal will have to be lodged quoting the above guidance.

Reasonable excuse

An appeal can be made against a penalty on the basis of having a ‘reasonable excuse’.

This is broadly defined as circumstances that prevented filing, for example illness of the client or a close relative, or loss of business records due to theft, fire, etc.

The conditions preventing filing must continue throughout the default period, ie, the period from the due date to the actual filing date (para 23, Sch 55, Finance Act 2009 (FA 2009), HMRC manual CH61500).

HMRC does have a discretionary power to withdraw the requirement to file a return where, for example, it is issued in error, or they agree it is not required.

If agreed by HMRC, any penalties related to the return in question would cease to apply. The time limit for withdrawal of a notice to make a return is two years after the end of the tax year concerned, ie, by 5 April 2021 for a 2019/20 return.

This can be done either at the request of the taxpayer or agent, or at HMRC’s discretion (s8B Taxes Management Act 1970 (TMA 1970), SAM120115.

Provisional tax returns

Depending on the complexity of the return and the information currently held, it may be possible to file a provisional return which can be amended later.

HMRC’s guidance is contained in SAM121190 and on page TRG14 of the Tax Return Guide A150.

 Late payment penalties (Sch 56 FA 2009, CH150000)

Additional penalties apply in the case of late payment of tax as follows:

•  5% of the amount of tax unpaid 30 days after the payment due date;

• further penalties of 5% of any amounts of tax still unpaid at six months; and

• further penalties of 5% of any amounts of tax still unpaid at 12 months.

Note that there is no published equivalent for late payment penalties of HMRC's ‘special treatment’ for late filing penalties in deceased cases outlined above – so consideration should be given to making a provisional payment on an estimated basis in the case you refer to above.

However, no penalty will be chargeable if HMRC agree there is a reasonable excuse for the failure to pay on time – see CH155550.

About the author

Roger Bradbury is a tax consultant at Croner Taxwise tel: 0844 892 2470

This article first appeared on Croner Taxwise