Friday, 4 May 2012

UPDATED TSCB 1: For new rules on registration for Income Tax and NIC and penalties

I'm just highlighting that I have made amendments to TSCB 1 article here

In the article I advised that
(1) once trading, the newly self-employed should register for income tax & Class 2 NIC on Form CWF1 within 3 months of starting up.
(2) that the penalty for failure to do so was a £100 flat penalty.
(3) ignored the new tax geared penalty regime and changes in the deadlines in the article.

Why change it now?

Because at the time I wrote the article, the old rules were more likely to apply than the new rules.  But what I failed to realise was that the article would still be relevant in a year's time when the new rules are in full swing.

Whilst it's embarrassing to admit in public I should have said at the time that the rules were changing (and if the series had continued beyond February 2011 I was planning a specific article on the new penalties regime so there's a lesson there about the consequences of not carrying out one's good intentions...); I feel it's more important to make sure that the advice on the blog is accurate (to the best of my knowledge) and up to date, than be pretending to be all knowing (I'm not) and that nothing ever changes (it does, frequently).  Above all, I do not want to mislead anyone.

Ok, so, if I followed your original advice is there anything I need to do now?  How wrong was it?

If you followed the original advice - you're fine.  There's nothing needs to be changed.

  • your tax and NIC liabilities have been notified well within HMRC deadlines
  • you won't have been asked to pay any tax or NIC earlier than you should have.  
  • you are more likely to have got your tax affairs straight because you'll (hopefully) have considered the Small Earnings Exception by the 3 month deadline and not had the hassle of having to make a reclaim and prove your earnings after the event once you realised you missed it.  
  • you won't have been liable for any penalties, and therefore won't have been aware that the penalty was tax geared and not a flat £100 any more.
So what has changed?
  • In deadline terms, you only need to register within 3 months of commencement if you're claiming the Small Earnings Exception.  After that, it's all down to your personal circumstances - hence my continued advice to just register within 3 months.
  • But it's still a good idea to register sooner rather than later because it gives HMRC plenty of time to issue the relevant paperwork and ensures you don't miss any deadlines at all.
  • Form CWF1 is no longer as relevant for income tax (it remains relevant for Class 2 NIC) but as HMRC has chosen to retain it, it's best to use it.
  • The penalty for failure to register is no longer a flat £100, it's now based on the amount of tax or NIC owing for the duration of the failure.
Are you going to do a more in-depth blog post on these specific issues in future?

I've been considering it, but no, I don't think so.  Unless it causes a lot of additional questions, then we'll see.

I'm still of the view that is that it's best practice to register within 3 months of starting up.  HMRC recommend as soon as possible.  

It is entirely up to you, dear reader, whether or not you do that, or whether you choose to run up to the wire on the deadlines - at your own risk!  

I think it's worth noting here that the detail of the deadlines and the circumstances in which they apply are not at all easy to ascertain on HMRC's website unless you know what you're looking for. I had to go back to the legislation and work out what should happen before I could spot them there.


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