Don't get caught out by the taxman! A round-up of new HMRC penalties and powers

HM Revenue and Customs (HMRC) recently unveiled a plethora of changes to its penalties and regulations, as well as proposed increases in its powers and capabilities. This factsheet provides a round-up of some of the most significant changes affecting businesses and individuals, including the new penalties for late filing.

Increased penalties for late filing

A new penalty regime for late filing and late payment of Income Tax through Self Assessment has now come into effect.
Under the new framework, which first applies to 2010/11 tax returns, the penalties for submitting tax returns late have risen significantly. It means that a return filed six months after the deadline could attract a fine of at least £1,300.
Previously, filing the returns after the annual 31 January deadline would lead to a £100 fine. However, HMRC claims that this failed to act as a deterrent. It hopes the new harsher penalty system will therefore encourage people to 'submit returns as soon as possible'.
Another big change to the penalty regime is that the fines will no longer be cancelled if the taxpayer owes no money to HMRC, because there was no extra tax to pay or because it had been paid. The new penalties for fi ling tax returns late are as follows:

• Day one - Individuals will be charged an initial penalty of £100, even if they have no tax to pay or have already paid all the tax owed
• Over three months late - Individuals will be charged an automatic daily penalty of £10 per day, up to a maximum of £900
• Over six months late - Individuals will be charged further penalties, which are the greater of 5% of the tax due or £300
• Over 12 months late - Individuals will be charged yet more penalties, which are the greater of 5% of the tax due or £300. In serious cases people face a higher penalty of up to 100% of the tax due.

Meanwhile, the penalties for paying tax late are:

• 30 days late - Individuals will be charged an initial late payment penalty of 5% of the tax unpaid at that date
• Six months late - Individuals will be charged a further late payment penalty of 5% of the tax that is still unpaid
• 12 months late - Individuals will be charged a further late payment penalty of 5% of the tax that is still unpaid. The above penalties are levied on top of the interest that HMRC will charge on all outstanding amounts, including unpaid penalties, until payment is received.

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