Thursday, March 31, 2011
Tax tease: Late filing penalty STAYS at £100
The media have been reporting that the £100 penalty for late filed tax returns is about to rise from £100 "to a possible £1,300". Nice and newsworthy. Whilst arguably true it's not as big a deal as the reports suggest. Quelle suprise!
Most of the media stories are lifted directly from HMRC's press release about the new penalty regime for 2010/11 tax returns: File your tax return on time and avoid the new penalties.
This highlights two key changes. The first is that the £100 penalty will be charged even if you have no tax to pay or you have already paid all the tax you owe. And there will be further penalties for returns filed more than 3 months late. These penalties could rise to £1,300. previously the £100 was all that could be charged. Late paid tax continues to be subject to interest and to late payment surcharges.
I don't suppose it really matters that the changes addressed by the press release were actually announced by Alastair Darling in his April 2009 Budget. This followed a (so-called) Consultation document issued just a few months earlier as part of the 2008 Pre-Budget Report. That was in the days before the Coalition Government's new approach to tax policy making - the policy decision to abolish the £100 penalty had clearly already been taken by Mr Darling. The Consultation was a formality.
I accept that the £100 penalty is not much of a deterrent as plenty of people who were late filing their tax returns simply paid their tax on time and could then avoid a late filing penalty. This will no longer be possible.
I have two concerns though - which will affect those people who file their tax returns just a few days late:
The first relates back to the reason for the penalty being limited to the amount of outstanding tax at 31 January. When the self assessment system was introduced it was thought it would be unreasonable to charge disproportionate penalties. There were fears that a pensioner who owed, say, £10 of tax, would have a legitimate complaint if charged £100 just because her tax return was filed a few days late. What's changed here?
My second concern is that the taxman's computers are fallible. Erroneous penalty charges are inevitable. Under the present system many such errors go unnoticed as penalties are routinely refunded once the late tax return is processed and the computer recognises that sufficient tax was paid before the deadline. In future the £100 penalty will be payable regardless so there will be plenty of arguments about precisely when tax returns were filed.
Will the prospect of higher penalties for late filed returns motivate you to ensure that your next return is filed well before the 31 January deadline?