New penalty regime for self assessment
The system of late compliance penalties may be seen as a necessary evil to encourage good, compliant tax behaviour – which is crucial to the cash-flow of the UK economy. However, there has been so much revising and tweaking of the penalty regime in recent years, it has been hard to keep abreast of where we are.
With different regimes for self assessment, VAT, special returns (e.g. PAYE, CIS, P11Ds), corporation tax, as well as the other taxes such as inheritance tax and stamp duty, there are now 350 different penalties on the statute books and they are only becoming more punitive. It is little wonder that practitioners are becoming increasingly concerned about the current penalty regime.
In ACCA's In Practice enewsletter, we previously looked at tax and other deadlines.
Here we look at one aspect of the ever-changing regime of tax penalties, i.e. the new self assessment late filing and payment regime, which came into effect from 6 April 2011.
The new regime
From 6 April 2011, the self assessment penalty regime has changed and this affects any returns which are due to be filed after that date. Therefore, the first returns to be affected will be those for the year ended 5 April 2011.
The main changes under the new system are:
- the fixed late filing penalties will no longer be restricted to the amount of tax outstanding as at 31 January following the end of the tax year, so the full penalty will apply even if there is no tax or a repayment of tax due
- introduction of a new additional daily £10 penalty if the return is more than three months late. The daily penalty becomes due from the date that HMRC issue a notice, which cannot be before 1 May following the end of the tax year. HMRC can issue such a notice without recourse to a Tax Tribunal. The penalty is capped to a maximum of £900
- the fixed £100 penalty for returns more than 6 months late has been replaced by a penalty of £300 or 5% of the tax due per the return, whichever is the higher
- a new penalty has been introduced for returns more than 12 months late of £300 or 5% of the tax due per the return, whichever is the higher. In serious cases, this can revert to 100% of the tax due per the return.
The penalties under the new regime are generally more severe and are summarised in this table, with the changes shown in red.
The new penalty regime is implemented by Finance Act 2009, Schedule 55.
The situation before 6 April 2011
Since 6 April 2008 (when the new 31 October deadline for filing paper tax returns came into effect), the late filing and penalty regime has been as illustrated in this table.