Given that HMRC is busy trying to claw back as much of its pandemic support expenditure as possible, you would have thought it would smile favourably on anyone paying taxes early.

If so, you may need to think again. According to the Daily Telegraph, HMRC fined company director John Howard for paying his taxes ‘too early’.

Fined for paying taxes early

Mr Howard had been fined for filing his PAYE returns late via HMRC’s Real Time Information (RTI) system. He didn’t want to get slapped with another penalty. To avoid this, he filed three months’ payment in advance during September 2020.

Although HMRC’s systems allowed Mr Howard to file and pay the returns, the taxman wasn’t happy. Claiming the payments had not been “filed correctly and on time”, HMRC fined the business owner £100 for each early return.

Tribunal overturns decision

Mr Howard wasn’t pleased to be slapped with penalties, especially as he had taken steps to avoid them. So he took HMRC to a tribunal

HMRC had sent the taxpayer a letter after his original late payments. As a result, it claimed he should have known when to file his returns.

The tribunal disagreed because at no point had HMRC said he couldn’t file his returns early. Consequently, the tribunal ruled in Mr Howard’s favour and said he had a reasonable excuse to file and pay his returns ahead of time.

What does HMRC regard as a ‘reasonable excuse’?

As the Daily Telegraph article points out, HMRC defines what constitutes a ‘reasonable excuse’ that allows you to appeal against tax penalties. It says that:

“A reasonable excuse is something that stopped you meeting a tax obligation that you took reasonable care to meet”.

Clearly the tribunal believed that Mr Howard took ‘reasonable care’ to meet his tax obligations!

Is paying taxes early ever worth it?

Some people like to pay taxes early for peace of mind. Most others prefer to keep hold of their money until close to the payment deadline. Whichever you do is a matter of personal preference. However, the lesson we’ve learned from Mr Howard’s case is that it can be unwise to pay up too early. Hopefully the lesson that HMRC has learned is that it needs to update its systems to prevent early filing and payment.

By the way, don’t forget the July Income Tax deadline

Before we finish, a quick reminder for all Self-Assessment clients. Your second Income Tax payment ‘on account’ is due at the end of this month. Please make sure you pay by midnight on 31st July or you too could face unwelcome penalties.

Need further advice on any of the topics being discussed? Get in touch and see how we can help.

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About Karen Jones

Having worked for one of the world’s largest accountancy firms, Karen Jones uses her tax knowledge and skills to help clients obtain substantial reductions to their tax liabilities.

With an expanding portfolio of tax clients, Karen enjoys the variety her work brings her and particularly likes working with new businesses and people. With a growing number of tax clients, she frequently faces a variety of challenges and relishes the experience she gains as she solves them.

Karen likes the THP ethos: “I like the way the team has a professional, but friendly and down-to-earth approach – it creates a productive atmosphere that benefits everyone.”

Karen’s specialist skills:

  • Personal Taxation
  • Tax Efficient Planning
  • Trust Administration
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