Late-filling penalty? It’s time for VAR says ICAS

First published on 12 November 2020 by Alastair
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As accountants firms the length and breadth of the country prepare for the rush of clients demanding their accounts are ship-shape in time for HMRC’s 31st January deadline, one thing is clear.  All our clients’ businesses have, to some extent or another, been affected by the impact of the coronavirus – as have we and, I’m sure, all the other accountancy firms across Scotland. Some clients have stopped, paused or slowed sending us their accounts for the very simple reason that office-based finance staff have been furloughed and/or been WFH, while many business owners have been spending every hour spinning plates to keep their companies viable.   Of course, they need to provide the information required for tax returns, but these, as we are constantly reminded, are unprecedented times.

Consequently, I was heartened to read that the Institute of Chartered Accountants Scotland (ICAS) are aware that some firms are significantly behind in their processing of tax returns compared to “normal” years.  The continuing roll-over of what are effectively subdued versions of lockdown has exacerbated the situation, with some larger firms reporting to ICAS that they have been approached to take on work by smaller firms which have run out of capacity.

In the preceding “normal” years, any late filing attracted a penalty, but now ICAS is calling on HMRC to take a second look at the evidence with a view to changing its mind. More specifically, ICAS suggests that HMRC offers a waiver of three months before the penalty kicks in. Essentially, ICAS is asking HMRC to accept that, in these exceptional circumstances, the pandemic will be accepted as a ‘reasonable excuse’ for late filing, especially as quite a lot of businesses are also seeking help from their advisers about the impact of Brexit. Crucially, ICAS is calling for this waiver to be automatic and not require an appeal because the costs in terms of agents’ time would outweigh the saving of a £100 penalty.

ICAS also notes that  Companies House has extended the filing deadlines for Corporation Tax by three months, with the result that clients are now working to this deadline and consequently information for tax returns is not always available when required. Moreover, in some cases there are doubts whether businesses remain ‘going concerns,’ which can also cause delays to sign off on audited accounts (the basis for the corporation tax returns).

It remains to be seen how HMRC will respond. Will they review the evidence and then still award the penalty, scoring an own-goal in PR terms?  Or will they realise that there is no malice aforethought and that in these desperate times  giving clients the benefit of the doubt is a more sensible approach? We shall see.

Chris Leslie, Tax Senior

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