Received HMRC late filing penalty

Received HMRC late filing penalty for failure to submit your company’s corporation tax return. The HM Revenue and Customs (HMRC) automatically send out late filing penalty as soon as your tax return is overdue.

Your company is dormant

Do not ignore this penalty notice even if your company is dormant and you have nothing to declare in your company’s tax return.

In this instance, you must write to HMRC to let them know that your company is dormant. Enclose a copy of your dormant company account to prove it.

When writing to HMRC, you must include your Unique Tax Reference (UTR) number. With your UTR number, HMRC staff would have a big smile on their face when processing your company’s tax affairs.

Bear in mind, HMRC staff are handling 4,316,395 companies in the United Kingdom. Your allocated UTR would give them the lightning speed to access and update your company’s tax affairs.

HMRC may waive your late filing penalty in this circumstance if you can prove your company is dormant.

To avoid you received HMRC late filing penalty again in the future, write to HMRC to let them know about your company’s trading status at the same time you submit your confirmation statement and dormant account with Companies House.

Your company is trading

In this instance, you must complete the CT600 form for your company and submit it to HMRC via a trusted online software platform.

In addition, you must pay the late filing penalty. They are many ways you can pay HMRC – by debit or credit card, a bank transfer, through a Post Office and by cheque.

Take note that the late filing penalty from HMRC is separate from the late filing penalty issued by Companies House for late filing of your company accounts.

VAT and corporation tax

VAT and corporation tax is two different taxes administered by HM Revenue and Customs.

Your limited company is legally required to pay corporation tax if your company has made a profit and submit your corporation tax return with HM Revenue and Customs (HMRC).

If your limited company is registered for VAT with HMRC then your company is legally required to charge VAT to your customers and submit VAT returns to HMRC.

VAT

Let say, your company is selling children clothing, the applicable VAT rate is zero percent, your price for a pair of child’s trouser is £20 and the VAT rate for children’s clothing is zero percent. Your customer will pay you £20.

If your are selling website coding services, you would charge a standard VAT rate of 20% to your customers. Say, your project fee is £1000 and your invoice to your customer would be £1000 + 20% VAT and the final invoice price is £1200. The £200 collected is VAT. This amount is called output tax.

The £200 belongs to HMRC. Thus, your company is technically collecting the VAT on behalf of HMRC. Then, you report this output tax collection in your VAT return.

Corporation tax

Your company pay corporation tax on when there is a profit. Let use the website coding services business to illustrate how corporation tax is computed. Let say, your company only have one sale that is £1000 + 20% VAT equal to £1200.

When preparing your company account, you book only £1000 as your sale not the whole £1200 because the £200 of VAT belongs to HRMC and it is not your earning. Then you deduct any expenses you incurred to deliver the website coding services, say stationery cost of £150 (excluding VAT). Your profit is £850 (£1000 less £150). The current corporation tax rate is 20%, your corporation tax liability would be £170. Your company would report this tax liability in your corporation tax return called CT600 and submit it to HMRC.

HMRC published the current corporation tax rates .

No double counting of taxes

As you can see from the illustration above, your company would not pay double taxes on your business income. Basically, you collect VAT on behalf of HMRC from your customers. And, your VAT is excluded from your corporation tax computation.

Property expenses

Property expenses incurred wholly and exclusively for your property rental business are deductible. You would subtract the expenses from your rental income when calculating your profit from you property rental business.

Mortgage of your property

Generally, only the interest element of the mortgage of your property is deductible against your rental income.

Repairs and maintenance

You may claim all expenses incurred to make good of your property. This includes wages for the cleaners and gardeners.

However, you may not deduct costs to improve your property as repair and maintenance. For example, you replace sofa with a sofa bed.

Accountant’s fee

If you pay your accountant to upkeep your property rental company accounts. The accountancy fee is deductible.

Insurance

You may deduct your landlord’s policies for buildings, contents insurance and public liability insurance against your rental income.

Necessity

Council tax, gas, electricity and water rates are deductible if you are paying for it. However, if these expenses are paid by your tenants not you then you are not allowed to claim it.

Property letting fee

You may deduct the commission you paid to your estate agent. Similarly, for estate agent management fee if they manage the property for you.

Other costs

You may deduct the costs for phone calls, stationery and advertising for new tenants. If you show your property to your potential tenants yourself and you incurred fuel costs. You may deduct that expense too.

Legal fees

You may also deduct legal fees you paid to your solicitors relating to your property. For example, legal fee for renewing a lease for less than 50 years.

Subletting

If you are subletting, you may deduct the rent you paid to your landlord against the rental income you received. This include ground rents and service charges.

If you have any questions about your property rental expenses, feel free to get in touch with our accountants.

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