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Advisers brace for £90m penalty surge

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17th Feb 2012
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At the end of this week HMRC will start sending out around 900,000 penalty notices for failing to file 2010/11 Self Assessment returns on time.

Errant taxpayers will start receiving the notices from 20 February and HMRC will filter them out over the next couple of weeks to ease the administrative burden.

HMRC said the number of SA taxpayers who missed the 31 January deadline has grown rapidly in the last six years. In 2004-05, 876,000 people missed the deadline, rising to more than a million by 2006-07 and reaching 1.4 million in 2009-10.

The new penalty regime was designed to reduce this figure and has the following four elements:

  • £100 fine from 3 February (31 January deadline was extended due to HMRC strikes)
  • £10 a day fine from 1 May for 90 days – a maximum of £900
  • £300 fine on 1 August (or 5% of the tax due if that is more)
  • £300 fine on 1 February the following year (or 5% of the tax due if that is more)

The filing date for returns sent in on paper was 31 October, so the dates at which fines apply are also three months earlier than those for online filers. If a taxpayer has not filed their 2010-11 return yet, they should file online now, the CIOT advised. Anyone filing a paper return will immediately be fined £100 along with daily penalties for being more than 3 months late for 31 October paper deadline.

Fines are no longer capped at the tax owed, therefore taxpayers could face fines of up to £1,600, even if they owe nothing.

The figure of 900,000 penalty notices represents a 36% drop from the 1.4m issued last year, indicating that HMRC has been successful at cracking down on late filing.

But the figure is still higher than CIOT tax policy director John Whiting expected. “No one expected the same numbers of penalties this year, but it’s still a huge number that has serious implications all round,” he told AccountingWEB.

“Of the 1.4m notices that went out last year, a huge number were torn up because the tax was paid, so there were no penalties to be paid.”

As previously, some notices will be cancelled this year due to reasonable excuse appeals, but most of those 900,000 taxpayers will be liable for a minimum penalty of £100 this year, reaping close to £90m to help close the government’s budget deficit.

An HMRC spokesperson told AccountingWEB that it wasn’t about the amount taken in penalties, but more to do with “tackling the problem of late filing and non-filing of self-assessment tax returns.”

Anyone who has not filed a return HMRC on time will get a £100 penalty notice, together with a leaflet encouraging them to call or get their return filed online. HMRC will then contact repeatedly by letter and by phone in February and March to urge them to avoid incurring the daily penalties.

Taxpayers can phone a helpline (0845 900 0444) if they think they do not need to be in the SA system, and if they shouldn’t, HMRC will remove them and cancel the penalty notice.

HMRC will also cancel the penalty, at its discretion, where there is a reasonable excuse. As a first tier tribunal judge, however, John Whiting also worried that the new regime would stimulate a surge in appeals against HMRC decisions on resaonable excuse, increasing the tribunal workload.

Whiting, who is also the policy director at the Office of Tax Simplification expressed "some sympathy" with the Revenue for the sheer volume of people who are late.

"In spite of their best efforts, there were 900,000 who did not file on time. Perhaps it won’t be solved until you hit them over the head,” he said.

"But what is causing this? I said 10 years ago we needed to drill down more deeply into the problem and examine who are the people who are experiencing problems. Are we really a nation of procrastinators and they just can’t get around to it? Or are there specific reasons why they are not able to file on time?”

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Replies (24)

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By ShirleyM
17th Feb 2012 10:48

I have sympathy for HMRC

There will always be a hard core of people who don't face up to their responsibilities unless pushed into it. While there will always be genuine reasons for not submitting a return within the deadlines, most people get 9 months in which to comply.

It costs time and money to keep chasing these people and it is time and money that could be better spent elsewhere. HMRC is such a dinosaur it will probably cost the taxpayers more than £100 to actually get each penalty paid!

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By thomas34
17th Feb 2012 12:10

Inconsistency

Amazing that HMRC can issue these notices within a couple of weeks of the deadline (quite correctly) but are unable/unwilling to send out penalty notices for non-submission of P35s until the penalty has quadrupled.

It behoves all of us to appeal each and every one of these £400 penalties as a matter of principle and challenge HMRC's contempt of Geraint Jones' decision in the FTT.

 

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Derek French
By derek44
17th Feb 2012 12:12

Penalty Numbers.

The real reason there is so many penalties is that there are too many people being taxed. If the Government was dramatically shrunk so nobody need pay tax until they earned, say, £100,000, then there would be considerably less people penalised, considerably less work making it easier to follow-up those that should be paying, and life would be a lot simpler for nearly everyone. Wouldn't help the accountancy profession though, so perhaps be happy with the status quo, eh?

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By accountsdragon
17th Feb 2012 12:39

I don't understand why people would rather pay fines

We all have those clients who wait till the last minute, despite our endeavours to encourage and educate.  I have one client who only sent me his paperwork after a huge fine from Companies House.  I have repeatedly nagged about getting the next lot from him, but I doubt I will before the next Penalty Notice drops on his mat. 

I know a lot of clients who are fearful of paperwork and think they have better things to do!  But I thought that's why they paid us!

Those getting fined largely seem to accept it, so maybe HMRC should double the fines and increase tax revenue without too much expense!

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By ireallyshouldknowthisbut
17th Feb 2012 17:36

not high enough
£100 isn't enough. Its costs nearly that to fill my car up!

If they want them all in by 31st Jan then I am afraid they need to make it £250 or £500, and even then someone on £200K may not be very worried.

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Chris M
By mr. mischief
17th Feb 2012 18:22

Should be higher!

My method is to add 25% to bills for SA clients after 15 Nov, and 50% after 25 Dec.  The result of this is they all suddenly turn up.  I have not had to add 50% to anyone's bills, and added 25% to 4 clients.

All 4 said "You are doing the right thing, it's fair enough!" or words to that effect.  So overall a bigger fine would motivate folk to do things properly.

I am now applying the same thing to company accounts - sending out a letter with 60 days to go to the deadline saying "Get me your information in the next month or the fee goes up by £300!"

Overall I support a heavier fine on 31 January, I also think there needs to be more of an effort to understand the root causes.  In some cases such as divorce or other major event it is understandable the records are not in proper order.

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By mikewhit
19th Feb 2012 08:42

Stick - and carrot ?

Why not a £50 refund if you get it in before 31st December (or some other early date).

Child psychology suggests that rewards are more effective than punishment ... and it might save them that amount in reduced penalty processing.

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By justsotax
20th Feb 2012 11:30

@ mr mischief....absolutely no problem with your approach..

but I presume it works both ways....clients has a 25%/50% discount etc in fees if you are slow in dealing with matters?  Although I think the strategy is slightly floored.....

You  - Mr Client your normal fee is £500....so its an extra..£125 because it is after mid November....

client - erm...but even if i am late i only get a £100 penalty...?!

 

I am not suggesting the strategy is wrong.....it is always about a bit of carrot and a bit of stick....but I would suggest that given this strategy who wouldn't want a bigger penalty.

 

Just out of interest has anybody ever received a speeding ticket or perhaps driven over the speed limit.....?  Presumably not, because I am guessing those who want an increase in the penalty for returns always leave with plenty of time to spare/never have a reason (good or bad) to speed (ieb get to the destination on time or before....similar to doing your return by 31st)?.....speed kills (so we are led to believe) - just giving this a little context.....

 

 

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By I'msorryIhaven'taclue
20th Feb 2012 11:37

Disparate Housewives?

I wonder how many wives who are directors of their husbands' companies will end up with huge penal fines.

This government are setting out to destroy the middle classes. Bring back Mrs Thatcher!

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By Robert Hurn
20th Feb 2012 11:43

Reasonable Excuse

We are currently trying to convince HMRC that a client's death is a reasonable excuse for late filing of the 2010 return.

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By pauljohnston
20th Feb 2012 11:49

Just one thought

I am not condeming the £100 fine but if you have no cash not submitting your tax return means that you only get a £100 tax bill, in the short term.  Whereas if your tax bill is £10,000 and you put your return in on time and dont have the cash you have HMRC breathing heavily down your neck.  Not helpful if you are tryting to raise the £10,000.

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Replying to johngroganjga:
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By The Black Knight
20th Feb 2012 12:42

one thought is all it takes !

pauljohnston wrote:

I am not condeming the £100 fine but if you have no cash not submitting your tax return means that you only get a £100 tax bill, in the short term.  Whereas if your tax bill is £10,000 and you put your return in on time and dont have the cash you have HMRC breathing heavily down your neck.  Not helpful if you are trying to raise the £10,000.

That's the one! No money to pay the tax bill, £100 buys you time.

HMRC rarely issue determinations these days.

And HMRC only chase compliant customers.

We have one case that was 5 years old when he came to see me now 9 years (even I have given up) has only had to pay a few £100....that have not been collected.

Action...from HMRC? you are having a Giraffe !

Word soon gets round that this works.

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By justsotax
20th Feb 2012 12:06

@ pauljohnston - add to that

the accountants fee and it really shouldn't come as a surprise that people pop stuff in late. 

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Brian Heller
By williamb1
20th Feb 2012 12:21

HMRC

Clients are claiming  that HMRC are now reporting " tax arrears " to credit agencies. One client has had his  credit rating reduced due to a penalty of £800.00 for none submission of a P35. This was in a year 2010 2011:the original busuness had ceased the year before. No return was due and nothing was owed. Although the panalty will be removed, the damage to the credit rating is done. 

All over the UK many  businesses will now suffer by having their credit ratings reduced.Many will be due to HMRC mistakes. How will that help  economic recovery?! 

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By Cruncher Alan
22nd Feb 2012 19:26

£1 per minute late

We filed a tax return and the acknowldgement says 00.01.49 on 3 Feb. We have just received a penalty notice. That means they are being charged approx £1 per minute past the deadline.

I would have expected a little more flexibility, especially for those of us who work off the beaten track, but for those of you who think that HMRC should be paid in blood, would this rate suffivce.

 

 

 

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By I'msorryIhaven'taclue
22nd Feb 2012 22:32

Seconded

Hang on a minute Alan - if the fine were £1 a minute it would amount to £1.80p

Have you thought about combing through their accounts for all the small items they did not bother to claim? Maybe change their year end? Either way, it would give you a warm feeling inside if you were able to submit a revised return with £200 of tax savings. (Always pay people back double!).

 

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By ShirleyM
23rd Feb 2012 10:46

@Alan

Tell HMRC you are keeping the penalty for yourself. I think you deserve the £100 for filing returns in the middle of the night. :)

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By justsotax
23rd Feb 2012 16:27

@ Alan...to be fair to the revenue....

they did give your client a further 48 hours .... and he then failed by a further minute....some poeple just don't learn.....

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By cfield
26th Feb 2012 11:31

Penalties

Haven't penalties gone up enough in recent years?

You talk about wealthy people not turning a hair at £100, but what about all the pensioners who are only in the SA system because they have a bit of bank interest or a let property. Should they be forced to pay £250 or £500 when they don't even owe any tax, or the tax owing is just miniscule?

The real reason so many people are being sent tax returns now is because the higher rate threshold has been either frozen or reduced for the last few years. Higher rate taxpayers are now very common, so it shouldn't be a surprise that more people have to do tax returns.

A more sensible statistic would be the proportion of tax returns that are filed late.

Chris

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By I'msorryIhaven'taclue
27th Feb 2012 08:50

Penal

Chris makes a good point about pensioners and the poor - how many will discover 5 years down the line that they should have been submitting tax returns, and that even though they owe little or no tax they will have racked up £8k in penalties? I alluded earlier to a samilar issue regarding directors' wives.

Popular history has it that people were once deported to penal colonies for stealing so much as a loaf of bread. These crippling HMRC penalties are similar madness, and will help lead to another "brain-drain" of those who are able to leave the UK to live and work in a more sensible country.

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By ShirleyM
27th Feb 2012 09:47

Let the brain drain people go and good riddance

I get sick and tired of the wealthy complaining about their tax. If it is such a hardship then they should 'go elsewhere' and if they get ill, get everything stolen or lose their money some other way then they should be refused re-entry to the UK when they realise how much they now need our help.

There are people here who are really struggling and would be really happy to pay 50% tax if this meant they were earning decent money. The high rate tax payers don't pay 50% on all of their earnings ... which is what they try to make out is the case.

There is only so much money to go round (be it the UK, the world, or the blasted universe). In my opinion, the more some people earn the less is available for anyone else. The more money an individual earns means someone, somewhere, earns less. Yes, I've heard all the arguments that hard work and entrepeneurship should be rewarded, but at what point does it turn into greed? I've no problem with people being wealthy, but I do have a problem with wealthy people who whinge about paying tax and prefer to hard over large amounts of money to individuals who can help them avoid tax, rather than actually pay tax to help the other citizens of this country.

Why is it so difficult for people to understand that if the largest part of the population is poor, then the wealthy will eventually become poor, as there will not be anyone who can afford their goods & services (except other wealthy people).

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By I'msorryIhaven'taclue
27th Feb 2012 12:03

It's Not the Wealthy who are Copping it...

Well I disagree, Shirley.

The middle classes are shrinking, which means there are fewer and fewer of us whose taxes, NI contributions, speeding and parking fines are having to support the burgeoning underclass of Jeremy Kyle show contestants. When we all emigrate there'll only be you and Jeremy left to police them all, so I guess you'll have to be the Chancellor and Jeremy Prime Minister.

The great brain drain of the 'sixties came about when those middle classes realised they could b*gger off to warmer climes and no longer have to support the work-shy classes via what was, under Wilson, a tax regime that served to fleece the middle classes. Instead of heavy-handed Super Tax, death duties, and Capital Gains Tax our current-day mangles are speeding and parking fines, petrol duty, and disproportionately large university fees and tax penalties.

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By cfield
28th Feb 2012 23:44

Wishful thinking

[quote=ShirleyM]

"I get sick and tired of the wealthy complaining about their tax. If it is such a hardship then they should 'go elsewhere' and if they get ill, get everything stolen or lose their money some other way then they should be refused re-entry to the UK when they realise how much they now need our help."

Be careful what you wish for Shirley. The truth is that we need these people more than they need us. If wealthy people flee the country for more favourable tax regimes, it is you and I who will have to make up the lost tax receipts. Anyway, can you really imagine them crawling back on their hands and knees after losing all their money abroad and begging for re-admittance? Of course they're not going to lose their money, nor shall we refuse them medical treatment (after all, we don't refuse anyone else) and at least they paid taxes while they were here.

"There are people here who are really struggling and would be really happy to pay 50% tax if this meant they were earning decent money. The high rate tax payers don't pay 50% on all of their earnings ... which is what they try to make out is the case."

Are people really struggling? I feel very sorry for the unemployed, who are having a terrible time now thanks to the greed and incompetence of others, but most people seem to be doing very well from our current economic woes. Low interest rates on their mortgages, low prices in the shops and huge cash payouts in Tax Credits. It's incredible how much people get. Is it my imagination, or did most familes get by perfectly well once without these massive state subsidies?

"There is only so much money to go round (be it the UK, the world, or the blasted universe). In my opinion, the more some people earn the less is available for anyone else. The more money an individual earns means someone, somewhere, earns less."

I disagree with this. Money tends to be a reward for productivity (unless it's handed out in state benefits) and so increases the wealth of the nation. By wealth I mean non-monetary things too, such as schools, hospitals, law and order, new products/services, anything that increases the well-being of society. I don't think most people are made poorer just because others earn more. However, we will be poorer if we continue paying ourselves money that is not derived from wealth creation, as that money will ultimately lose its value.

"Yes, I've heard all the arguments that hard work and entrepeneurship should be rewarded, but at what point does it turn into greed?"

When people rig the market to artifically pay themselves more than their productivity deserves. By this I'm talking mainly about directors of top companies scratching each others backs and paying themselves massive bonuses that the ultimate owners of those companies (us through our pension funds) would never sanction if we had any say in the matter. But it's not just them. Tube drivers, for example, have rigged the market too by holding the public to ransom with constant strikes and forcing the transport authorities to pay them far more than the true market rate for their work. I don't mind about footballers, film stars, rock stars, etc. They get paid what the people who buy their services are willing to pay them, which is different.

"I've no problem with people being wealthy, but I do have a problem with wealthy people who whinge about paying tax and prefer to hard over large amounts of money to individuals who can help them avoid tax, rather than actually pay tax to help the other citizens of this country."

But there comes a point when tax is too high. Should people stop whining and just pay up whatever the Government demands for ever? For example, it is well known that the 50% tax rate is counter-productive. It was intended more as a political statement than a revenue generating measure. I agree that stamp duty evasion by non-doms, for example,  should be clamped down on (although I believe this particular tax avoidance device is designed mainly to avoid CGT and IHT) but SDLT is too high anyway. A decent sized house in London and the South East costs about £500k now. 4% stamp duty comes to £20k. That's a lot of money just for moving house - a year's take home pay for many people. SDLT should be no higher than 1% - any more than that is just immoral.

"Why is it so difficult for people to understand that if the largest part of the population is poor, then the wealthy will eventually become poor, as there will not be anyone who can afford their goods & services (except other wealthy people)."

But are most people poor? The UK wouldn't be such an expensive place to live if that were true. I think part of the reason is the official definition of poverty (60% of median income). As such, it is a moving target and cannot ever be eliminated. Our grandparents and their ancestors knew what poverty was. People living in Third World countries know what poverty is. I don't think many people in the UK today are really living in poverty, not in the strictest sense of the word.

Why is it so difficult for people to understand that the more you tax an economy, the less effective that economy is. Bringing tax rates down usually creates more tax revenue, and vice versa. I thought we learned that lesson in the 70s and 80s. Seems like we need to learn it all over again.

Chris

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By justsotax
01st Mar 2012 13:27

I agree Chris.....I vote for a basic rate of

10%....that seems fair?!!?

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