Paying taxes early? Be careful!

You would have thought HMRC 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 hit with another penalty. To avoid this, he filed three months’ payments 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

As one can understand, Mr Howard wasn’t pleased to receive these 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.