What can be done about late filing?

What can be done about late filing?

Accountants up and down the country are currently battling with last-minute tax returns, in an effort to try and help their clients; so, what can be done to solve the problem of taxpayers who file late?

The vast majority of accountants have never filed anything outside the statutory deadlines, other than by accident or as a result of poor performance by clients. However, as we try to negotiate the terrors of the tax return season, with the 31st January deadline fast approaching, clients with attitudes will be causing us sleepless nights.

It isn’t just personal tax returns that are left until the last minute and then beyond, companies often struggle to get accounts in on time, with around 200,000 sets of accounts not filed by the statutory deadlines. This is completely unacceptable, both from the perspective of those who fail and the watchdogs who should be preventing such lax compliance.

Personal Tax Returns: Why are so many returns late?

Whether it be individual taxpayers or companies, in almost all cases there can only be two possible reasons why filings are delayed beyond the deadline. It is either a deliberate decision or some kind of unintended error. In many cases, the unintentional could be considered to be wilful, especially those who leave everything until the last minute and then realise that they don’t have time to complete the process.

One might also reasonably suggest that failures by hundreds of thousands of people to complete income tax returns or get accounts into Companies House on time, could potentially mask criminal activity by those who are keen to hide wrongdoing from the powers that be.

The laggards who mess us around every year are culpable, not the happy charmers they pretend to be, laughing as we tell them for the umpteenth time that unless we receive their papers last week, they could be up for a filing penalty. They know as well as we do that if they send tax return information in on 30th January, we will work our socks off to submit their returns before midnight on the 31st.

Late Personal Tax Returns: Is there a simple solution?

This might go against the grain for many, but the answer is yes! The penalties for failure to comply are ridiculously low, which results in many taxpayers quite happily filing late, in the knowledge that the additional cost of compliance is far greater than the penalty that they will suffer by delaying. Even tax-geared deadlines are ineffective, most obviously where the “taxpayer” is not actually due to pay any tax.

Taking personal tax returns as a starting point, if the penalty for missing a deadline was £1,000, then it’s not hard to imagine that far more clients would pull their fingers out and make sure that they avoided a significant financial imposition. If it was £10,000, imagine all those delinquent clients queueing up on the doorstep and begging their accountant us to do the necessary.

The same principle applies to companies. In this case, a more obvious measure to use may be corporate turnover. If, instead of a fixed fee, the penalty for failing to file accounts with Companies House on time was, shall we say, 5% of annual turnover and then increasing by a similar amount for every additional month, it would provide a major incentive for the directors to extract their middle digits.

Also, these suggested penalties could make a significant contribution to reducing the UK’s debt mountain and perhaps pay for the odd much-needed extra doctor or nurse.

Late Personal Tax Returns: The get-out-of-jail card

Of course, if someone has a reasonable excuse, or as accountants call it, the get-out-of-jail card, this must always be taken into account, though more often than not with a pinch of salt. I quite like the idea of making reasonable excuse a double-or-quits event, somewhat akin to reviews of dodgy caught-behind decisions in test matches, maybe even with the equivalent to an umpire’s call where the excuse was plausible, but not quite good enough.

If anyone wants to claim that such a proposition is out of proportion in cases where somebody takes action only a day or two late, it might be worth remembering that the period for filing returns is not a few days or even a week or two, it is at least ten months for personal tax returns and at least nine months for the accounts of private companies.

Tax Accountant’s view

Since my suggested measures to solve the problem of late filing are currently just ideas, I expect that until the powers-that-be start adopting my suggestions, or something similar, then most accountants are going to endure another 10 days or so of burning the midnight oil. But I’m not getting depressed as it’s not far to the finishing line and then I’m off for a couple of weeks’ rest in the sun.