Self Assessment Penalty

New Penalties Regime for Self Assessment

Effective 6 April 2011

H M Revenue & Customs (HMRC) will be bringing in a new set of penalty rules for late filing and late payment of tax. Legislation for this is included in Finance Act 2009. HMRC has just published a draft order which will bring in the new late filing and late payment penalties for income tax self assessment (i.e. personal, trust and partnership returns) from 6 April 2011.

The Draft Appointed Day Order for ITSA late filing and late payment penalties brings into force Schedules 55 and 56 of Finance Act 2009. It will apply from 6 April 2011 to returns and payments due for tax years 2010/11 onwards.

Changes to the current regime are highlighted below.

Under the new penalty regime, the penalty for late filing for personal and trust returns will no longer be ‘capped’ at the lower of £100 and the balance of tax outstanding at 31 January. The penalties for late filing will include:

• £100 penalty immediately after the due date for filing (whether or not the tax has been paid)
• daily penalties of £10 per day for returns that are more than 3 months late, running for a maximum of 90 days
• penalties of 5% of the tax due for the return period (or £300 if greater) for prolonged failures (over 6 months and again at 12 months)
• a higher penalty of 70% of the tax due where a person fails to submit a return for over 12 months and has deliberately withheld information necessary for HMRC to assess the tax due.
• this becomes a maximum 100% penalty if the behaviour is deliberate with concealment.

The penalty regime for late payment of any tax due will be:

• a penalty of 5% of the amount of tax unpaid, generally 1 month after the payment due date (or at the filing date of the relevant return)
• further penalties of 5% of any amounts still unpaid at 6 months
• and further penalties of 5% of any amounts still unpaid at 12 months

Except that the current system with suspension of late payment penalties continues, whereby the taxpayer agrees a time to pay arrangement with HMRC.

It is therefore clear that any taxpayer who has not yet filed their 2010 tax return (or indeed any returns still outstanding for earlier years) must move urgently to bring their affairs up to date. Whilst these changes are not retrospective, 2011 returns cannot be completed until returns for earlier years are filed.

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