Penalties for missing tax return deadlines will soar nearly 10-fold if you are six months late from this week, in a further blow to taxpayers who have had to put up with years of bungling by the Revenue.
Following an announcement hidden away in the 2009 budget, about which HM Revenue & Customs has issued “reminders” to accountants in the past few days, HMRC is embarking on a much tougher regime from the start of the new tax year on Wednesday.
For someone who has failed to file a return after six months and who has £30,000 tax outstanding, the penalties will rise from £650 including interest under the current regime to £5,950 under the new one — an increase of 815%.
Under the current system, there is a £100 fine for missing the January 31 deadline and a further £100 if you still haven’t filed six months later. In the meantime, you pay 3% interest on any tax due. This amounts to £450 over six months in our example above, giving a total of £650 in interest and penalties.
Under the new rules, if you file late and you have tax to pay, the Revenue will still levy an initial £100 fine. It will then impose a penalty of 5% of the outstanding tax after one month, or £1,500 in our example. There will be a further fine of £10 a day after three months, up to a maximum of £900; and yet another penalty totalling 10% of tax owed or £300, whichever is higher, after six months. This amounts to £3,000 in our example — a total of £5,950 including the 3% interest.
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If you are 12 months late, there will be a further 10% to pay and, for those who still haven’t filed once the 12-month deadline has passed, another potential fine of 70% of the tax outstanding. Annual interest of 3% of tax due will apply throughout.
There are 9m people in the self-assessment regime and about 1m miss the January 31 deadline each year. The majority manage to send in their forms and settle outstanding debts within the next couple of months but the Revenue has been keen for some time to clamp down on habitual offenders who leave it much longer.
Although HMRC says it wishes to clamp down only on persistent tax-dodgers, the new penalties all apply even if there is no tax outstanding, but the form is late. Taxpayers owing small amounts could end up paying more than the outstanding bill.
Mike Warburton at Grant Thornton, the accountant, said: “Many people will be shocked by this change. The main reason for it is that HMRC is forced to waste a lot of time chasing up habitual late filers, many of whom finish up with minimal tax due so the fine doesn’t pay for the effort.”
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The new regime will also raise eyebrows as millions of taxpayers have had to put up with years of bungling by HMRC. It revealed in September that 1.4m people were to expect demands for payment of tax, averaging £1,428 each, because of its miscalculations. The Revenue is still informing these people of the errors, which are due to computer problems.
Those who owe less than £2,000 will have the money deducted from their pay-packets through the PAYE system or via their tax code from this year — this will cost families an average of £120 a month. The Revenue also said it would waive bills of less than £300 but not for those in self- assessment. While there are 30m people in PAYE, and 9m in self-assessment, between 4m and 5m are thought to overlap the two.
HMRC was later forced to admit it has a backlog of 18m other open cases.
The Revenue has also been battling a growing number of self-employed contractors whom it has taken to court over non-filing of tax returns, often because they have been badly affected by the recession.
HMRC can only go back six years to chase money except in cases of serious fraud. It is possible to challenge a demand using the tax rule A19, which states that if HMRC has not noticed the error within 12 months of tax being paid, the demand can be set aside.
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