There is one other piece of the jigsaw that I should clarify. It was the one thing I wasn't absolutely clear about until recently. That is at what point would HMRC's computer start issuing £100 penalty notices for paper based tax returns filed late (in November, December and January)?
As the late filing penalty legislation was unchanged I was pretty sure (but not 100% confident) that HMRC's computer would NOT issue penalty notices until after the 31 January deadline.
Imagine filing a paper based tax return in November 2008. In theory this might trigger a £100 penalty notice. This would appear on the next statement of account issued to identify the tax payable on 31 January, once the late tax return was processed. Assume then that the full balance of the tax and penalty was paid by 31 January. Well, the £100 would then be refundable as there was no unpaid tax at 31 January. Equally I couldn't imagine HMRC using heavy handed collection procedures to chase for prompt payment of the £100 penalty knowing that it could well be repayable within a matter of weeks.
As I say, I was pretty sure that HMRC's computer would only charge the £100 penalty if a paper based tax return was filed after 31 October AND there was outstanding tax at 31 January. And despite all the hype and the focus on who would or wouldn't have a 'reasonable excuse' for late filed paper based tax returns, I've now seen definitive confirmation as follows:
A penalty for late filing of a paper return will not be generated by HMRC systems until after 31 January 2008. This is to allow HMRC to determine the amount of the penalty, which is £100 or the amount of tax outstanding at 31 January, whichever amount is smaller. The penalty will therefore be reduced to nil if all tax due has been paid by that date. The self-assessment statements that go out from 24 February will therefore either show a penalty that is still outstanding, or a penalty that has been reduced to nil.
NB: The position is NOT the same for partnerships - as explained in yesterday's post and an earlier one specifically about partnership tax returns.