# Penalty for late tax return



## msh (27 Nov 2013)

We (husband and I) filed tax returns this year for the last 5 years. We expected to get a refund but were shocked to discover that we own them 8.5k! My husband is a proprietary director for a company from which he receives NO income and he has been fined for filing a late return. The fine seems to be based on all our PAYE income, rather than the company income. We receive no income other than that which we get from our normal PAYE jobs. What are our chances of successfully appealing this? It seems a bit unfair that someone receiving no income should be fined in this way (and yes, I know Revenue isn't about "fair")


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## coolhandluke (27 Nov 2013)

That's sounds like an absolute joke, and just confirms the heavy handed approach that revenue seem to take with ordinary citizens as opposed to the more connected, unless this is some kind of automatic electronic "fine". 

Other arms of the state, would never get away with the sort of carry on revenue seem to believe they can get away with.....time for a serious rethink, in that Dept.


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## Joe_90 (27 Nov 2013)

It's a severe penalty all right but it is very easily avoided by filing the returns on time.  

Being a director brings responsibilities and one is filing an income tax return.  

Unless the company is Non trading there is a major issue here.

Dublin66 is the PAYE guru he might have a view.


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## Clarkey (27 Nov 2013)

msh said:


> We (husband and I) filed tax returns this year for the last 5 years. We expected to get a refund but were shocked to discover that we own them 8.5k! My husband is a proprietary director for a company from which he receives NO income and he has been fined for filing a late return. The fine seems to be based on all our PAYE income, rather than the company income. We receive no income other than that which we get from our normal PAYE jobs. What are our chances of successfully appealing this? It seems a bit unfair that someone receiving no income should be fined in this way (and yes, I know Revenue isn't about "fair")



Where there is no income from the proprietary directorship Revenue are usually ok with removing the surcharge. Haven't dealt with one in a while but this used to be the case. Worth a phone call


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## Bronte (28 Nov 2013)

I'd try the phone call approach, if you find the right person, who can 'fix' the computer you might be lucky.  Also could try the calling into the office route with a tale of woe and how you cannot afford this etc.  Not sure if they still have the power/discretion to delete the surcharge.  But due to the recession, revenue have been instructed to be a bit more lenient.


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## msh (28 Nov 2013)

Coolhandluke, Clarkey and Bronte - Thank you for your replies. We'll try phoning. I know you can sometimes be lucky with the person you get. It would be reasonable to penalise based on the income from the directorship all right.


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## T McGibney (28 Nov 2013)

Clarkey said:


> Where there is no income from the proprietary directorship Revenue are usually ok with removing the surcharge. Haven't dealt with one in a while but this used to be the case. Worth a phone call



The surcharge legislation clearly excludes proprietary directors who don't earn a salary from their proprietary directorships.  The OP may need to point this out to Revenue.


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## Joe_90 (28 Nov 2013)

Tommy can you give a reference for this . 

My understanding is that a proprietary director was a chargeable person and that PAYE (on all employments husband and wife) was not allowed before deducting the surcharge.  But would be delighted to be wrong.


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## T McGibney (28 Nov 2013)

Not offhand Joe, too much on this morning, but the Revenue FOI notes on the 1992 Finance Act & proprietary director surcharge are very clear on this.


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## msh (28 Nov 2013)

My husband phoned and they are sticking to their guns on it. They said to apply in writing. Tommy - would really appreciate a reference at some stage when you get a chance.


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## msh (28 Nov 2013)

Tommy - I googled your comment above and found a newsletter from 1999 from revenue at [broken link removed]  It states that the penalty is based on your income from the directorship. So 10% of zero is zero! I'll print that out, highlight the relevant section and send it in to them. Thank you for your help. Much appreciated. I'm presuming that there has been no change to the legislation since then?


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## T McGibney (28 Nov 2013)

I've located the following AAM discussion http://www.askaboutmoney.com/showthread.php?t=164089

I think both your source and the above both refer though to non-proprietary directors so it mightn't be what you need. Still I'd suggest, at least for the moment, that you use it to open your discussion with Revenue. Maybe someone else can locate something more definitive?


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## mandelbrot (28 Nov 2013)

T McGibney said:


> I've located the following AAM discussion http://www.askaboutmoney.com/showthread.php?t=164089
> 
> I think both your source and the above both refer though to non-proprietary directors so it mightn't be what you need. Still I'd suggest, at least for the moment, that you use it to open your discussion with Revenue. Maybe someone else can locate something more definitive?


 
The legislation is quite clear on this - S.950(1)(c), which has been replaced from 1/1/2013 by S.959B(1)(c), excludes from the definition of a chargeable person, an individual who is a director (no distinction between proprietary or non-proprietary) of a company which throughout a 3 year period up to 5 April in the year of assesment has negligible assets, hasn't carried on any trade or business, and hasn't paid any charges on income.


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## T McGibney (28 Nov 2013)

Ah, that's it. Thanks


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## msh (28 Nov 2013)

Non-proprietary directors aren't subject to the late filing charge so I'd be hopeful that the newsletter would apply to us. I know what I've googled previously doesn't clearly state what PAYE income the charge applies to but the newsletter states that non-proprietary directors aren't subject to the penalty and then goes on to state that the penalty is calculated based on director income. Maybe I'm just being overly optimistic and reading it incorrectly. I have to say I'm confused by it all and appreciate the help I'm getting here.


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## msh (28 Nov 2013)

The company has been trading (and is fully compliant from a tax perspective) so my husband is a chargeable person. What I'm hoping for is that the penalty is based on income from the directorship rather than all income. We thought (obviously erroneously!) that as there was no income from the directorship, the normal PAYE rules regarding filing your personal return were the ones that applied to us.


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## Joe_90 (28 Nov 2013)

mandelbrot said:


> The legislation is quite clear on this - S.950(1)(c), which has been replaced from 1/1/2013 by S.959B(1)(c), excludes from the definition of a chargeable person, an individual who is a director (no distinction between proprietary or non-proprietary) of a company which throughout a 3 year period up to 5 April in the year of assesment has negligible assets, hasn't carried on any trade or business, and hasn't paid any charges on income.



I'm not being pedantic had a conversation with someone last week about this and I'm not aware of relief.

I don't see anything in the reference above to the director not receiving a salary being exempt having to file a return.


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## msh (28 Nov 2013)

Joe - I'm not talking about relief now. He is not exempt from filing a return. I know that. It is a question of what income the penalty should be calculated from. The newsletter stated that the penalty was calculated based on the income tax liability from the directorship income. I am hoping that that means the penalty should be calculated as zero as the directorship income was zero. They have calculated the penalty based on all income rather than directorship income.


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## censuspro (28 Nov 2013)

mandelbrot said:


> The legislation is quite clear on this - S.950(1)(c), which has been replaced from 1/1/2013 by S.959B(1)(c), excludes from the definition of a chargeable person, an individual who is a director (no distinction between proprietary or non-proprietary) of a company which throughout a 3 year period up to 5 April in the year of assesment has negligible assets, hasn't carried on any trade or business, and hasn't paid any charges on income.



The reason it doesn't differentiate between a proprietary and non proprietary is because non proprietary are not obliged to submit a tax return.

OP, would be interested to know the outcome of this, please keep us posted.


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## mandelbrot (28 Nov 2013)

I'm not sure what the confusion is here - 


The legislation which I've already quoted indicates:
a chargeable person is obliged to file a return
S.959B (formerly S.950) clearly excludes from the definition of a chargeable person, a director of a non-trading, dormant company
This is made quite clear in the Notes for Guidance ([broken link removed]) at page 4:

_"__This section excludes certain persons from the definition of "chargeable persons" in *section 959A*, namely it excludes persons: _

_whose only source of income is emoluments taxed under the PAYE system (under *Part 42*) provided that person is not a Director of a *trading* company or the jointly assessed spouse / civil partner of a Director__"_

It is also made explicit in the Revenue Statement of Practice here ([broken link removed]) which states:

"EXCLUSIONS IN THE 1992 ACT 
3.1 The 1992 Act *excludes certain types of directors from the new provisions, for example, directors of shelf companies, directors of genuinely dormant companies* and others who take up temporary directorships in the period prior to a company commencing activity.​
3.2 These examples are covered by the exceptions listed in the Act. The exceptions are directors of a body corporate which during the three years ending on 5 April in the year of assessment - 

was not entitled to any assets other than cash on hands, or a sum of money on deposit within the meaning of Section 230 Finance Act, 1992, not exceeding £100, and 

​
did not carry on a trade, business or other activity including the making of investments and 

​
did not pay charges on income within the meaning of Section 10 of the Corporation Tax Act, 1976."
I'm not sure what else could be needed to clarify this any further...​


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## msh (28 Nov 2013)

The issue is not whether a return should have been made or not. It should have been submitted. There is no question about that. The question now is what income tax liability should be used to calculate the penalty. The legislation doesn't specify as far as I can see but the newsletter I referred to above states that the penalty is calculated on the income tax liability from the directorship (I think!). I am hoping that nothing has been introduced since that newsletter was issued by revenue that would mean the penalty is calculated on all income from all sources. If anyone knows of anything else in relation to this I would appreciate the help. 

I do appreciate all the advice and pointers.


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## Joe_90 (28 Nov 2013)

mandelbrot said:


> I'm not sure what the confusion is here -
> 
> 
> The legislation which I've already quoted indicates:
> ...


_

But in this case it's a trading company._


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## mandelbrot (28 Nov 2013)

Joe_90 said:


> But in this case it's a trading company.


 
If that's the case then OP is goosed, but they haven't actually said that it's a trading company as far as I can see...  Just that they aren't exempt from filing a return, but it's not clear why they think this is the case, so I think first thing's first, we need to clarify whether or not the company is a trading company... over to you OP?


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## mandelbrot (28 Nov 2013)

msh said:


> Tommy - I googled your comment above and found a newsletter from 1999 from revenue at [broken link removed] It states that the penalty is based on your income from the directorship. So 10% of zero is zero! I'll print that out, highlight the relevant section and send it in to them. Thank you for your help. Much appreciated. I'm presuming that there has been no change to the legislation since then?


 


msh said:


> The issue is not whether a return should have been made or not. It should have been submitted. There is no question about that. The question now is what income tax liability should be used to calculate the penalty. The legislation doesn't specify as far as I can see but the newsletter I referred to above states that the penalty is calculated on the income tax liability from the directorship. I am hoping that nothing has been introduced since that newsletter was issued by revenue that would mean the penalty is calculated on all income from all sources. If anyone knows of anything else in relation to this I would appreciate the help.
> 
> I do appreciate all the advice and pointers.


 
The legislation does specify - the surcharge is due on the total tax liability, without credit for PAYE paid in the proprietary directorship.

And I think you have misread what was in the tax briefing article Tommy linked - it says _"__Where the late filing surcharge applies, it is calculated on the tax liability before credit is given for the tax deducted under PAYE on the directorship income" _- it goes on to give a simple example where the only income is from a proprietary directorship, but if there is other income it is included, and the tax on it calculated, and then the surcharge applied to that figure.


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## msh (28 Nov 2013)

It is a trading company. My husband receives no income from the directorship (he's a director for altruistic reasons that I'd prefer not to go in to). He is a chargeable director but my reading of the newsletter I linked to previously (sorry - it won't let me pull an excerpt out) is that the penalty is based on the income from the directorship, not the total income from all sources. The legislation doesn't specify what income is used to calculate the penalty. I am hoping that my reading of this newsletter is correct and also that if revenue make this statement in a newsletter that it does apply.


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## Joe_90 (28 Nov 2013)

He is a director and owns more than 15% of the share capital.  Hardly altruistic.  

While I agree wholeheartedly that it is ridiculous to surcharge the spouses income and then non Directorship income I think that as the provisions apply the surcharge has been correctly applied.


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## Joe_90 (28 Nov 2013)

mandelbrot said:


> The legislation does specify - the surcharge is due on the total tax liability, without credit for PAYE paid in the proprietary directorship.
> 
> ]



This is the exact point at issue.  

Does the legislation state it's without PAYE paid in the proprietary directorship because if so then the OP is in the clear as all the PAYE paid is on non proprietary directorship OR all PAYE.


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## msh (28 Nov 2013)

Mandelbrot - I guess then we just have to hope that someone reasonable deals with it in revenue and takes pity on us. I feel that the newsletter could be interpreted to mean only directorship income is used in the calculation but I can also see how it might be interpreted differently. I know ignorance is no excuse but we have paid all tax due every year so we might hopefully get the benefit of the doubt.


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## msh (28 Nov 2013)

Joe - he is getting nothing out of this directorship. I don't want to go in to the details but he is certainly not in it for profit.


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## msh (28 Nov 2013)

Mandelbrot - I guess then we just have to hope that someone reasonable deals with it in revenue and takes pity on us. I feel that the newsletter could be interpreted to mean only directorship income is used in the calculation but I can also see how it might be interpreted differently. I know ignorance is no excuse but we have paid all tax due every year so we might hopefully get the benefit of the doubt.


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## msh (29 Nov 2013)

Joe - I'm sorry but I don't understand your last post. Would you mind explaining in more detail? Thanks.


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## Sophrosyne (29 Nov 2013)

I think that because in your original post, you said that your husband received no income from the company, people concluded that the company was not trading, or had negligible assets, etc.
Reading your subsequent posts, this is obviously not the case.
The surcharge applies to *all* taxes payable.
How Revenue will view the surcharge will depend on the specific facts of your situation and the reason for the failure to file returns.
You and/or your husband/ tax practioner perhaps should try to engage with Revenue, which may not be wholly unsympathetic to any extenuating circumstances.


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## Bronte (29 Nov 2013)

I find all of this very confusing. 

Is this correct, 

A trading company
A proprietary Director (not sure if non-proprietary director is also included) 
Who owns a % of the company
With zero income
Is late filing a return
A fine/surcharge is imposed on all income, including PAYE income
This fine is also imposed on the spouse, who has nothing to do with the company (is that because they are jointly assessed?)

What's the difference between a proprietary and non Proprietary?


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## T McGibney (29 Nov 2013)

I have encountered several Revenue staff who freely acknowledge that  this particular surcharge is ridiculously punitive on proprietary  directors and are happy to waive it if there is any degree of  extenuating circumstances.


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## T McGibney (29 Nov 2013)

Bronte said:


> What's the difference between a proprietary and non Proprietary?



Proprietary = 15%+ shareholding.


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## Joe_90 (29 Nov 2013)

So in conclusion a director who owns more than 15% of the ordinary share capital of a trading company has to file a return and if its late the surcharge applies to the liability before any relief for PAYE paid.

The only relief from this is that a Revenue official may choose at their discretion to remove the surcharge.  But this is entirely at their discretion.

Are we all agreed on that?


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## DB74 (29 Nov 2013)

It's the same with the LPT surcharge. If a self-employed person files their LPT return late then they are liable for a surcharge of 10% of their full Income Tax liability for the previous tax year. 

We all want a high percentage of compliance when it comes to stuff like this but the penalties are ridiculously disproportionate in some cases. Joe Bloggs employee doesn't have anything like the penalties for this.


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## Joe_90 (29 Nov 2013)

@DB74 Agreed the difference is that if you sort out the LPT the surcharge is reduced to 100% of the LPT.


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## Time (29 Nov 2013)

So you end up paying the LPT twice?


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## mandelbrot (29 Nov 2013)

Time said:


> So you end up paying the LPT twice?



No you pay the LPT once, and you pay an income tax surcharge which is capped at the amount of your LPT liability.

There'll be uproar when the proverbial starts to hits the fan next October...


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## T McGibney (29 Nov 2013)

mandelbrot said:


> There'll be uproar when the proverbial starts to hits the fan next October...



And rightly so. The injustice is palpable.


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## Bronte (29 Nov 2013)

And what about the fact the household charge and I think also the NPPR are being added to the LPT, how will surcharges work on that?

NPPR of course is not a problem for home owners.


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## Joe_90 (29 Nov 2013)

Thankfully we have only had one so far, the client somehow had prepaid the following year, so surcharge was lifted.

The penalties for LPT and NPPR are very when compared to the other taxes where a 10% -30% penalty is available.


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## dublin66 (3 Dec 2013)

I have always considered the 10% surcharge without any credit for PAYE to be very punitive. Make sure you appeal the assessment within 30 days. If you have no luck with the Revenue's discretion you can always take a case to the Ombudsman. If it goes to Appeal you probably won't get very far but at least it will stop the amount going for collection while you take your case through the Revenue system. 

A number of years back two taxpayers were paying rent to a non-resident landlord and did not deduct income tax on the rent. There was no collection agent so it was correctly their liability. However upon appealing the matter to the Ombundsman it was held that it would be unfair for the taxpayers (non-chargeable persons) to expect to be aware of the provision and they not due to pay the tax that they did not withhold. Worth an attempt in any event.


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## poundhound (17 Dec 2013)

A proprietary director is deemed to be a chargeable person, regardless of whether they derive any income from the directorship. They must file a tax return by the filing date or the surcharge applies. The surcharge is based on their liability from all sources of income.
Revenue will only consider a surcharge appeal if you provide a valid reason as to why the return could not have been filed on time.
Am I the only person who thinks that when you have 10 months to file a return (10.5 months if you file via ROS), and you still submit it late, you deserve to be surcharged?


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## T McGibney (17 Dec 2013)

poundhound said:


> A proprietary director is deemed to be a chargeable person, regardless of whether they derive any income from the directorship. They must file a tax return by the filing date or the surcharge applies. The surcharge is based on their liability from all sources of income.
> Revenue will only consider a surcharge appeal if you provide a valid reason as to why the return could not have been filed on time.
> Am I the only person who thinks that when you have 10 months to file a return (10.5 months if you file via ROS), and you still submit it late, you deserve to be surcharged?



The complaint isn't with the fact that a surcharge is imposed, its with the injustice inherent in the fact that the scale of the surcharge will be substantially higher for a so-called proprietary director than for another self-assessed individual with the same level of income.


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## Sophrosyne (17 Dec 2013)

Tommy,

Isn’t this because of the degree of power, which an owner-director has over company matters?
The higher surcharge is, I assume, to act as a deterrent against late or non-filing by those who have the most control because it would delay cross-checks with company returns.

Although the OP’s husband knew that he did not derive any income from the company, how would _Revenue_ know what was happening during these 5 years in the absence of returns?

According to Tax Briefing, Issue 36, page 10, this measure was introduced for proprietary directors:

“to ensure the effectiveness of Self Assessment audits of companies.
Because of the close association between a company and its directors, the effective auditing of the company requires full returns of all payments made to or expenses incurred for the benefit of the directors.”

The above quotation refers to proprietary directors only.


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## T McGibney (17 Dec 2013)

I don't see any justification there for treating proprietary directors any differently from sole traders. Your argument about Revenue needing to know what's going on in a company is weakened by the fact that company director salaries are all subject to PAYE regulations and are reportable on P35 returns by 15 February each year. This doesn't apply to sole traders.

It says a lot that the extra surcharge for proprietary directors was introduced by the well known tax law expert and paragon of financial probity, Bertie Ahern.


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## msh (27 Feb 2014)

Just wanted to update - revenue have waived the fine. I appreciate the help I received here.


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