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Tax penalties for limited companies and how to avoid them

Tax penalties for limited companies and how to avoid them
Essential tax compliance for limited companies

Tax penalties for limited companies and how to avoid them

Penalties for late payment

Late payments of taxes incur interest charges at a rate of 7.75%. This applies to various taxes, including corporation tax and income tax. So it’s worth avoiding, not least because of the dent in your cash. No one wants a penalty so let’s help you get it right!

A little note – All companies, including dormant and non-trading entities, are required to submit a confirmation statement at least once a year. This ensures the accuracy of the information that HMRC and Companies House have on record for your company is correct.

Although there is no penalty for late filing, it is mandatory to submit a confirmation statement even if there have been no changes to your company during the review period.

Additionally, you must declare that the planned future activities of the company are lawful. This requirement is applicable to all confirmation statements dated 5 March 2024 onwards.


Top Tips to avoid penalties.

Avoiding penalties and ensuring compliance is not just about adhering to deadlines; it involves strategic planning and best practices. Here’s a few top tips:

  1. Accurate record-keeping

Maintaining detailed and accurate financial records is more than a procedural task – it is the backbone of financial responsibility and regulatory compliance for any entity. This record-keeping ensures that financial statements and tax returns are prepared with precision, minimising the risk of inaccuracies that could potentially result in penalties or HMRC compliance enquiries.

  1. Never underestimate the importance of a good bookkeeper

Good attention to financial documentation offers invaluable insights into the business’s financial health, enabling informed decision-making. It also simplifies the process of identifying and putting right discrepancies early.

Get a good bookkeeper and make sure they are licensed and regulated for Anti-Money Laundering – it’s the law, so don’t use an unregistered bookkeeper. If you directly employ a bookkeeper make sure they are trained. Your bookkeeper will know your deadlines and compliance obligations.

  1. Save cash for tax obligations!

Setting aside funds for tax liabilities as they accrue throughout the financial year is a good idea and a must. This methodical approach eliminates the last-minute rush to gather sufficient funds for tax payments, thereby reducing stress and the risk of incurring penalties for late payments.

Additionally, by allocating funds for taxes in advance, individuals and businesses can improve their cashflow management, allowing for a more stable financial outlook.

  1. Use accounting technology – Digital First

The Making Tax Digital (MTD) initiative by HMRC represents a transformative approach to tax filing, mandating a digital-first approach.

Bookkeeping software solutions such as QuickBooks, Xero and Sage are designed to integrate seamlessly with HMRC’s systems, automating the submission of VAT and PAYE returns directly from the software.  Digital accounting helps businesses adhere to regulatory requirements while enhancing their operational efficiency and financial transparency. It will bring peace of mind and you accountants can access your software remotely, saving time and  making your like easier.

  1. Addressing penalties

When companies face penalties for late tax filings or payments, the option to appeal provides a recourse if they can present a valid reason for the delay, such as severe illness or unexpected technical disruptions. But be aware a good accountant will apply for a filing extension if you let them know about illness, bereavement or real technology issues.

Successful appeals hinge on the ability to conclusively demonstrate that the company took all reasonable steps to meet its tax obligations, despite the challenges faced.

Get help

Regular conversations with your accountant are often really helpful for maintaining compliance. Seeking professional help not only facilitates adherence to statutory deadlines but can also enhance your operational efficiency and financial health.

If you need help get in touch with us.