Tuesday, October 14, 2008

Is the 31 October deadline largely a white elephant?

In Summer 2007 I was speaking at a series of seminars around the UK as part of the ICAEW Tax Faculty's annual Roadshows. One of the issues I addressed was the potential impact of the new filing deadline.

Everyone was aware that Lord Carter's original proposal had been watered down in response to pressure largely from the profession (and co-ordinated by my friend, Paul Aplin). On each occasion I spoke I asked the question:
"But what does the 31 October filing deadline mean in practice?"
The answer I gave surprised most delegates and was often challenged by members of HMRC who heard me in advance of their own speaking spots during the seminars.

More recently my conclusions have been challenged by some accountants who have been taken in by HMRC publicity for the 31 October deadline. However HMRC have now effectively confirmed what I've been saying for over a year:
If you file a paper based tax return in November, December or January you will not be liable to pay the £100 late filing penalty as long as all tax due is paid by 31 January 2009.
So is the 31 October filing deadline a white elephant?

Well - not if you're involved in a partnership. The £100 penalty has always applied to the partnership and to each of the partners if the partnership return is filed late. And it's not rebated to nil. This is the reason why I highlighted, in an earlier blog, the importance of the deadline for professional firms that do not file their own partnership returns online.

It's also worth remembering that the enquiry window now closes 12 months after a tax return is filed so 'late' filed paper based tax returns extend the time period during which HMRC can open an enquiry into that return.

In their latest Self Assessment online filing update for agents HMRC skirt around the issue of the effective impact of the 31 October deadline. The focus is on whether a taxpayer who files a paper based return after this date has a 'reasonable excuse'. But this all seems to me to be a red herring. As long as all the tax due is paid by 31 January no penalty will be charged so there will be no need to consider whether there was a 'reasonable excuse'.

Finally I should stress that it would be unprofessional to suggest that clients can ignore the 31 October deadline simply because there is no effective penalty as long as they pay all of the tax they owe by 31 January 2009. But, in practice if you intend to file online and subsequently find that this is not possible for whatever reason you need not panic.

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