28 February Surcharge Deadline

If some or all of your tax and National Insurance (NI) liability for the year ended 5 April 2007 remains unpaid by 28 February 2008, then you will be liable for a 5% surcharge on the amount of tax and NI outstanding.  Can you appeal against a surcharge and what ways are there to pay your liability to avoid the charge?

What is the surcharge?

The surcharge is imposed on self assessment tax and NI liabilities (referred to throughout as tax) that were due on 31 January but remain unpaid at 28 February.  This is referred to as the initial surcharge.  There is also an additional surcharge on any tax outstanding more than six months after the due date.  Both the initial and additional surcharge are charged at a rate of 5% of the outstanding tax.

The surcharge is in addition to interest that will also be accruing on unpaid tax and the late filing penalty of £100 where the taxpayer failed to submit their tax return on time.

HM Revenue and Customs (HMRC) will send a formal notice to the taxpayer, advising them of the surcharge.  The taxpayer has 30 days from the issue date of the notice within which to appeal against the surcharge.  In practice, HMRC allows the taxpayer 35 days to appeal.

On what grounds may the taxpayer appeal against the surcharge?

A taxpayer may successfully appeal against the surcharge where they have a "reasonable excuse" for not paying the tax on time.  HMRC's Manuals provide details of what may be considered a reasonable excuse, which includes: payment lost in the post; payment dishonoured due to a bank error; serious illness; and bereavement.  Examples of what HMRC does not consider to be a reasonable excuse include: shortage of funds (but see the section below); cheque made out incorrectly; tax return not sent in; pressure of work; failure by professional adviser; not knowing how much to pay; and absence of reminders from HMRC.

Where there is a reasonable excuse, this must have existed throughout the whole of the default period and therefore the payment should be made promptly once the reasonable excuse ends.

HMRC's Manuals say that an appeal will not be dealt with until the underlying tax is paid.

What if the taxpayer has insufficient funds with which to pay their tax liability?

If a taxpayer has insufficient funds with which the pay their liability, then they may avoid surcharges if they provide HMRC with a proposal for making the payment.  The proposal would need to be received by HMRC before the date on which the surcharge becomes due.

How can you pay your liability?

You can pay your tax liability at your bank or post office, by post to HMRC's accounts office at Shipley or online via HMRC's website at http://www.hmrc.gov.uk/.  If you are paying online you will need to pay by debit card and will need your unique taxpayer reference number shown on your payslip (10 digits plus the letter K).

Maurice Fitzpatrick, a Senior Tax Manager at Grant Thornton says: "The late filing penalty of £100 may not be of great concern to some taxpayers, however the tax-geared nature of the surcharge means that the cost of failing to pay on time could be quite significant, especially when you take into account the interest that will also be accruing.  Even if tax liabilities have not yet been confirmed, taxpayers should consider making an estimated payment to HMRC to reduce the surcharge and further interest accruing."

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