Holden Associates – Accountants & Business Advisers Blog

As previously announced in the March 2010 Budget, although many small business owners could be forgiven for not noticing, a revised penalty regime will apply to taxpayers who fail to file their tax returns on time or pay their tax liabilities in full and on time for:

• VAT and insurance premium tax;
• aggregates levy, climate change levy and landfill tax;
• air passenger duty, alcoholic liquor duties, tobacco products duty, hydrocarbon oil duties, general betting duty, pool betting duty, bingo duty, lottery duty, gaming duty and remote gaming duty; and
• other excise duties.

The revised penalties will:

• be introduced over a number of years;
• treat late payment of tax and late-filed returns separately;
• reflect the more frequent filing and paying obligations for these taxes and duties compared to direct tax;
• try to encourage filing and payment by the correct dates by imposing an escalating series of penalties, depending on the number of failures within a set penalty period. Further penalties will arise if there is a prolonged delay in filing returns or paying the tax due;
• include a right of appeal if the taxpayer has a reasonable excuse for the lateness; and
• be avoided where taxpayers have agreed a time to pay arrangement with HMRC (as regards the late payment penalties).

The key features of the revised penalty for late filing of quarterly returns are:

• £100 penalty immediately after the due date for filing (whether or not the tax has been paid);
• the failure also starts a penalty period, which is set for a year;
• if there are further failures within the penalty period, then the fixed penalty escalates by £100 for each of those subsequent failures, up to a maximum of £400 per failure. The penalty period is also extended to the first anniversary of the latest failure;
• if any of the failures are prolonged, then additional penalties of five per cent of the tax on the relevant return are charged at six and 12 months from the date of the failure; and
• if, by failing to make the return, the taxpayer is deliberately withholding information to stop HMRC from correctly assessing the liability to tax, then penalties of up to 100 per cent of the tax on the return may be chargeable.

The revised penalty for late filing of monthly returns is similar to the quarterly model as explained above, except that, the fixed penalties are £100 for the first three failures in any penalty period, £200 for the second three failures, etc., up to a maximum of £400 per failure.

The key features of the revised penalty for late quarterly payments are:

• if a taxpayer first pays late, although there is no penalty, it starts a penalty period, which is set for a period of a year;
• any further failures within that period attract a penalty of two per cent of the unpaid tax, as well as extending the penalty period to the first anniversary of the latest failure;
• a third failure within the period attracts a penalty of three per cent, with further failures attracting a maximum of four per cent; and
• if any of the failures are prolonged, then additional penalties of five per cent of the unpaid tax are charged at six and 12 months from the date of the failure.

The revised penalty for late monthly payments is similar in structure to the quarterly model above, except that, after the first failure, the tax-geared penalties are:

• one per cent for the next three failures in any penalty period; and
• two per cent of the next three failures, etc., up to a maximum of four per cent per failure.

Special provisions deal with circumstances where taxpayers change from a monthly to a quarterly return, or where exceptional payment obligations arise.

The necessary legislation will be contained in a Finance Bill to be introduced after Parliament's summer recess.

So now you have been warned, be very careful not to be late with any filings or payments to HMRC in future, otherwise it could cost you dear.