Corporation Tax Compliance Avoiding Penalties

For companies or organisations subject to Corporation Tax, adhering to the deadlines and requirements set by HM Revenue and Customs (HMRC) is imperative. In addition, it is crucial to promptly rectify any inaccuracies, exclusions, or errors, as this could result in the reduction or avoidance of penalties. HMRC expects you to take reasonable care in managing your tax affairs to prevent Corporation Tax penalties. Examples of reasonable care include:

1. Ensuring the accuracy of your Company Tax Return and submitting it on time, with correct accounts, computations, claims, and calculations.
2. Informing HMRC within 12 months of your Corporation Tax accounting period’s end if you have chargeable profits but have yet to receive a ‘Notice to deliver a Company Tax Return.’
3. Maintaining adequate records to support your Company Tax Return, accounts, and claims for allowances and reliefs.
4. Providing all requested information to HMRC promptly.
5. Seeking clarification from HMRC when uncertain and adhering to their guidance.

If a mistake or omission is identified, it is imperative to alert HMRC immediately to reduce or eliminate penalties potentially. The degree of reasonable care required is contingent upon your organisation’s unique circumstances. If you disagree with a penalty decision, you can appeal it. Failing to notify HMRC of your company’s Corporation Tax liability within 12 months of the end of your accounting period may result in penalties. The nature of the error, your level of cooperation, and the timing of your disclosure are all factors that may affect the severity of the penalty. However, if reasonable care was taken despite the mistake, HMRC may not assess a penalty. It is important to note that different penalty processes apply to accounting periods ending before 1 April 2010.

Late filing of your Company Tax Return, even if no Corporation Tax is owed, will result in a penalty. Penalties for inaccurate Company Tax Returns, documents, and information depend on the type of error and the timing of your disclosure to HMRC. 

Penalties may be reduced if you promptly disclose errors and cooperate with HMRC. In addition, penalties may be suspended for careless errors if certain conditions are met to prevent future penalties.

Your company must maintain sufficient records for Corporation Tax purposes. Failure to do so may result in penalties.

Companies with annual profits exceeding £1.5 million must make Corporation Tax instalment payments. Deliberately failing to make payments or making insufficient payments may lead to penalties, which will be charged after your Company Tax Return has been submitted and the due date has passed.

To ensure compliance and avoid penalties associated with Corporation Tax, consider the following additional guidelines:

1. Regularly review and update your company’s financial records and tax-related documents to identify errors and discrepancies proactively.
2. Implement a robust internal control system that includes checks and balances to detect and prevent mistakes or misrepresentations in financial reporting and tax filings.
3. Engage a professional accountant or tax advisor who can provide expert guidance on Corporation Tax regulations, deadlines, and requirements, ensuring your company remains compliant.
4. Conduct periodic internal audits or engage an external auditor to review your company’s financial records and tax filings, identifying areas of potential risk or non-compliance.
5. Stay informed of any changes in tax legislation or updates from HMRC that may affect your company’s Corporation Tax obligations, and adjust your tax strategy and filing practices accordingly.

By adhering to these guidelines and demonstrating reasonable care in managing your company’s tax affairs, you can reduce the risk of penalties associated with Corporation Tax. Moreover, actively cooperating with HMRC and promptly disclosing errors or omissions can mitigate penalties or prevent them altogether.

It is important to note that the penalties imposed by HMRC depend on the type of error, level of cooperation with HMRC, and timing of disclosure. However, if a company can demonstrate that it took reasonable care but still made an error, then HMRC may not impose a penalty.

Companies have the right to appeal the decision if there is a disagreement with the penalties imposed by HMRC. It is crucial to provide all relevant documentation and evidence to support the appeal and seek guidance from a tax professional. By maintaining accurate records, staying informed about legislative changes, and proactively addressing tax-related issues, companies can ensure compliance with Corporation Tax requirements and avoid costly penalties.

If you need help to plan your taxes, please contact Tax Accountant at 0800 135 7323 or email info@taxaccountant.co.uk for expert advice.