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Every country has a statutory framework that sets boundaries as to how businesses function. There are obligations to be fulfilled, and any default usually leads to monetary and non-monetary penalties.
The United Kingdom also has a pre-defined framework for managing the companies. The article below will help gain insights into understanding and paying by the Companies House and HMRC penalties.
The topics discussed in the article are:
- What are Companies House penalties?
- Penalty amount
- Consequences of not filing
- Avoiding penalty
- How are accounts delivered an extension of deadlines
- Instalment payments
- Appeal against penalty
- Covid-19 guidelines
- Registrar’s discretion
- HMRC penalties
- Self-assessment
- Self-assessment penalties
- Corporate tax penalties
- VAT penalties
- How to pay Companies House penalties
- How to pay HMRC penalties
- Final thoughts
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What are Companies House penalties?
The government introduced Companies House penalties in 1992 to ensure that directors file their accounts and reports on time.
All private companies must submit their annual accounts with Companies House within 9 months from financial year-end. Different timelines apply for the public limited companies and the first year of incorporation.
Financial reporting is essential for all stakeholders. Such information is available freely in the public record. The Companies House maintains the list of all limited companies in the United Kingdom. You can access it at no cost here.
The sole aim is to encourage timely filling and achieve a zero penalty revenue generation ecosystem.
A director or key managerial personnel at LLP is directly responsible for submission for accounts within the due date in the correct format.
Here is the year-end checklist : How to close your small business books?
Penalty amount
The penalties are linked to when you file your accounts- the later the accounts are filed, the higher the penalty amount. The rates are different for public and private companies.
| Duration | Penalty for Private/ LLP Company | Penalty for Public Company |
| Late less than 1 month | £150 | £750 |
| Late 1 month to 3 months | £ 375 | £1,500 |
| Late 3 months to 6 months | £750 | £3,000 |
| Late more than 6 months | £1,500 | £7,500 |
The critical point here is that the penalty will double for late filings for two successive financial years consecutively.
Here is an example:
For instance, a private company has an accounting period ending on 30 June 2021. Since we are specifically not talking about first accounts, we would use nine months—the deadline for filing annual statutory accounts 31 March 2022.
If submissions are late by 2 days which is 2 April 2022, the penalty will be £150. The amount will double next year if again there is late submission of accounts.
What are the consequences of not filing?
It is a criminal office not to file accounts with the Companies House. The directors and the designated members can be personally liable for this default.
The entire set of criminal proceedings can be initiated against the company by the Companies House.
There is no offence in late submission, but the registrar can take steps to punish the company.
How to avoid a penalty?
The central question that pops up is that how to avoid the penalty?
The solution is to be vigilant and aware concerning all statutory timelines. Other steps that to avoid penalty are:
- If submitting a paper version, allow enough time for reports to reach the Companies House within the deadline.
- Mark your deadlines on email/calendar reminder.
- Instruct accountants to stay in sync with the time limit.
- In case of any doubts, check the Companies House service to know about the due date.
Check Our : top tips for meeting your accounting deadlines effectively
How are accounts delivered?
Accounts can be filed online or via post.
You can submit your company accounts to the Companies House credentials via the web filing portal.
However, if you have an accountant, then you don’t need to worry about this. They will file the accounts with the Companies House.
Can the deadlines be extended?
It is imperative to submit the accounts on time, but the reports can be filed late if there is a specific reason. The company within the deadline can apply for more time in the manner described below:
- The company unable to send its reports due to certain uncontrollable external factors can apply for an extension.
- Covid 19 is one factor where the government granted automatic extensions under the Corporate Insolvency and Governance Act.
Can you pay the penalty in instalments?
If you run into financial hardship or personal difficulty and cannot pay the penalties amount, there is help available. HMRC has time to pay arrangements.
You can agree with HMRC a bespoke payment plan. HMRC usually undertakes an “income and expenditure assessment” to understand how much you can afford. You can find out more here.
Appealing against penalty
The companies also have a legal right to appeal against the penalty under exceptional circumstances. The possible reasons for rejection include:
- Your company is dormant
- You cannot afford to pay
- Directors have financial difficulties
- Accounts are delayed
- You did not know when to file
- You did not know how to file
COVID -19 penalty guidelines
The pandemic has made certain temporary adjustments in the filling requirements. Therefore, the Companies Regulations 2020, in sync with Corporate Insolvency and Governance Act, decided to ease the filing deadlines for the last year 2020.
| Deadline between 27 June 2020 & 5 April 2021 | 12 months: Private Company 09 months: Public Company |
From 6 April 2021, companies have to file within the usual deadlines. Filing timelines are extended for the following:
- Confirmation Statement
- Details of company events
- Details of Mortgage Charge
The three-month extension in the pandemic ensures that businesses do not suffer in this sensitive period. You can appeal late filing penalties online. The details disclosed are:
- Company number
- Online filling authentication code
- Company’s penalty reference
- The reason for the request
Registrar’s discretion
The registrar has the discretion not to levy any penalty when a company submits its accounts late. The act only mentions the registrar discretion to collect the penalty. This discretion is also valid in certain exceptional circumstances where the Companies House stands responsible for late filing.
HMRC penalties
HM Revenue and Customs also follow a systematic arrangement to collect tax. People and businesses having other income must report it in a tax return to the department.
Self-assessment
For self-assessment, the tax return must be submitted if you are:
- A self-employed as a sole trader and have an income of more than £1,000
- A partner in a business partnership
Check our detailed Guide on: who is required to complete a self-assessment tax return.
The concerned people can submit the self-assessment return by 31 January every year if submitting online or 31 October by paper.
You may find our Guide to submitting a Self Assessment Tax Return useful.
Penalties are payable for late filing and late payment of tax due.
Self-assessment penalties
The two possibilities set of self-assessment penalties are:
- Late filing
- Late tax payment
Penalties in case of non-payment of due tax are:
- Payment late by 30 days- 5% of the tax due
- Payment late by six months- 5% of the tax due at that date
- 12 months and later- 5% of the tax unpaid at that date
Corporate Tax Penalty
Companies must pay the penalty if they don’t meet filing deadlines for the corporate tax return (form CT600). Directors are responsible for meeting the payment and submission deadlines.
- Corporation tax is payable within nine months and one day after your accounting period ends
- The Corporate tax return (CT600) filing deadline is within 12 months after the accounting period ends
The penalties in case of default are as follows:
| Time after deadline | Penalty |
| 1 day | £100 |
| 3 months | Another £100 |
| 6 months | 10% of the estimated unpaid tax |
| 12 months | Another 10% of any unpaid tax |
The £100 penalties are increased to £500 if the tax return is late three times consistently.
VAT penalties
Businesses registered for VAT are subject to the penalty framework of HMRC.
The default is recorded when:
- You do not submit a VAT return on time.
- You do not pay full payment for VAT by the timeline.
VAT payment deadline is usually within one month and seven days following the VAT quarter-end.
HMRC imposes surcharge limits on businesses to create a strict framework. A 12-month surcharge period is applicable in default, further extended by 12 months at the next run.
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The surcharge is not payable
- if you pay your VAT fully
- have no tax to pay
- you are due a VAT refund
It is a percentage of VAT that stands outstanding at the time of default. The rate, however, increases every time default happens.
The surcharge rates are:
| Defaults in 12 months | Annual Turnover less than £150,000 | Annual Turnover more than £150,000 |
| 1st | None | None |
| 2nd | None | 2% (Nothing if less than £400) |
| 3rd | 2% (Nothing if less than £400) | 5% (Nothing if less than £400) |
| 4th | 5% (Nothing if less than £400) | 10% or £30 (whichever is more) |
| 5th | 10% or £30 (whichever is greater) | 15% or £30 (whichever is greater) |
| 6th or more | 15% or £30 (whichever is greater) | 15% or £30 (whichever is greater) |
The rates keep on increasing consecutively. HMRC can also charge a penalty up to:
- 100% of the tax due if there is a careless or deliberate inaccuracy
- £400 if you submit a paper VAT return, unless you are exempt for online submission or MTD and
- 30% of assessment sent by HMRC if you think it is low, and you do not tell HMRC about it within 30 days.
How to pay Companies House penalties
You can pay the Companies House penalties through three modes:
| Paying online, telephone banking or BACS | Commonly known as bank transfer, it takes three working days for the payment to reach. Companies House sort code, account number and account name, are used. Sort code: 60-70-80 Account number: 10031154 Account name: CHSE LFP BACS ACC You will need Companies House swift code, account number, and account name for transfers from an overseas bank account. Swift code: NW BK GB 2L Account number (IBAN): GB34NWBK52210741005309 Account name: Late filing penalties receipts |
| Credit / Debit Card | The easiest and accessible mode is through cards. All you need is the company number, reference number on the notice and a Company House account. |
| Cheque | The cheque is payable to Companies House. It must accompany remittance advice- a slip attached to a penalty notice. Don’t forget to write the company name and number on the back of the cheque. The cheque is sent through post to the Companies House at the following address. Companies House PO Box 710 Crown Way CF14 3UZ |
How to pay HMRC penalties
You can pay the Companies House penalties through three modes:
| Paying online, telephone banking or BACS | Commonly known as bank transfer, it takes three working days for the payment to reach. HMRC sort code, account number and account name are used. Sort code: 08 32 10 Account number: 12001020 Account name: HMRC Shipley You will need HMRC swift code (also known as BIC code), account number (IBAN), and account name for transfers from an overseas bank account. Swift code (BIC): BARCGB22 Account number (IBAN): GB03 BARC 2011 4783 9776 92 Account name: HMRC Shipley |
| Pay online by Direct Debit | You can set up a direct debit from your HMRC online services account. This way, any outstanding penalties will be debited directly from your bank account. |
| Credit / Debit Card | The easiest and accessible mode is through corporate or personal debit or credit card. Click here to make the payment. Corporate debit/ credit cards carry a processing fee, whereas the payments from a personal card are free. HMRC has said that it will accept payment on the date you make it, not the date it reaches their account. |
| Cheque | The cheque is payable to ‘HM Revenue and Customs’. It must accompany remittance advice- a slip attached to a penalty notice. Don’t forget to write your 14 or 15 character payment reference on the back of the cheque. You’ll find the payment reference on the payslip attached to your Notice to Pay. If you do not have a payslip, then include the following details: ⦿ Your name, address and telephone number ⦿ payment reference. It usually begins with X ⦿ period that you are paying ⦿ an amount The cheque is sent through post to the HMRC at the following address. HMRC Direct BX5 5BD |
Final thoughts
Financial penalties have an objective to enable transparent financial mechanisms across businesses.
To avoid penalties, every company, LLP, an individual or sole trader must file returns and pay the taxes on time.
