New penalties in UK for late filing and payment of tax returns

As the end of the financial year approaches in the UK, the taxman is reminding people that new penalties apply this year for those failing to file their returns and pay on time.

The new penalty regime for late filing and late payment of Income Tax through Self Assessment starts in April 2011. Taxpayers who fill in Self Assessment tax returns will shortly receive their 2010/11 notices and paper returns, said HM Revenue & Customs (HMRC).

These will include information on the new penalty framework and how it will significantly increase penalties for those who file and pay late. A tax return filed six months late could attract a penalty of at least £1,300.

‘The vast majority of people don't have to pay penalties because they send in their return and pay on time. But there are always a small number of people who have avoided filing or paying on time. HMRC spends a lot of time pursing late returns and getting involved in unnecessary appeals work. We want to focus our resources on more productive work such as catching criminals and collecting tax,’ said HMRC's Stephen Banyard.

‘The old £100 penalty was not much of a deterrent and these new penalties, which increase over time, will get people to submit returns as soon as possible. Basically the greater the delay, the greater the penalty,’ he added.

If you file your tax return late from day one you will be charged an initial penalty of £100, even if you have no tax to pay or you have already paid all the tax you owe. If you are three months late you will be charged an automatic daily penalty of £10 per day, up to a maximum of £900.

For those who are six months late, further penalties, which are the greater of 5% of tax due or £300, will apply. Further penalties kick in at a year late which are the greatest of 5% of tax due or £300. In serious cases you face a higher penalty of up to 100% of the tax due.

Paying late penalties kick in at 30 days with an initial penalty of 5% of the tax unpaid at that date. F further penalty of 5% of the tax that is still unpaid is added at six months and at 12 months a further penalty of 5% of the tax that is still unpaid.

These penalties are on top of the interest that HMRC will charge on all outstanding amounts, including unpaid penalties, until your payment is received.

Penalties will be automatically sent to all Self Assessment taxpayers who do not file and pay on time. Taxpayers will be able to appeal against any penalty on the grounds that they have a reasonable excuse for not complying on time. All penalty notices will include an appeal form and details on how to appeal.