Taxman gets tougher

The January 31 deadline for filing tax returns on line is fast approaching and this year late filers will suffer increased penalties. Taxpayers will also find that the rules surrounding when penalties are issued have been tightened up making a penalty harder to avoid.

These changes are part of the wider penalty regime that is gradually being introduced by HMRC. The aim of these rules is to impose consistent penalties across the taxes and to change taxpayer behaviour. HMRC claims that the previous rules failed to act as a deterrent and it hopes the harsher penalty system will encourage people to submit returns as soon as possible.

Under the new framework, the initial penalty for those who miss the January 31 deadline remains at £100 as in previous years. If the return remains outstanding after three months, a penalty of £10 a day will be imposed by HMRC and this will be applied for a maximum of 90 days. After six months a tax-geared penalty arises, this being the greater of 5 per cent of the tax due or £300.

If the return is still outstanding after 12 months a further fine of 5 per cent of the tax due or £300 will apply. In serious cases, the penalty after a year can be up to 100 per cent of the amount of tax due.

If a partnership’s return is late, penalties will become due for every partner in the firm and this could be in addition to any fines for the late filing of partners’ individual returns.

The old penalty regime capped the amount of penalty which could be levied at the amount of tax outstanding at January 31. This allowed a taxpayer to make payment of their tax by the deadline to avoid a penalty for late filing.

Any individual who was not due to make a tax payment or was due a repayment also did not face a late filing penalty. This is no longer the case and penalties will arise regardless of whether any tax is due after January 31.

The new rules will mean a return that is not filed until August will attract the initial fixed penalty of £100, a total of £900 in relation to daily penalties and a penalty of £300 or 5 per cent of the tax that was due. This results in a charge of at least £1,300 even if no tax was payable!

As well as being the deadline for filing returns online, January 31 is the date that any tax payments become due. Penalties will apply for tax paid late in addition to those for late returns. If tax is paid thirty days late an initial penalty of 5 per cent of the tax unpaid at that date will be due, if paid six months late a further penalty of 5 per cent of the outstanding tax will arise and after twelve months an additional penalty of 5 per cent of the tax still unpaid will accrue. These penalties are in addition to the interest charged on all outstanding amounts, including unpaid penalties, until HMRC receives payment.

Taxpayers who fail to adhere to the deadlines may find this a costly experience under the new regime. Our tax department can provide support in all aspects of tax compliance and planning. If you require further information please telephone Mairi Drummond on 01573 224391 or email