The penalty legislation in Finance Act 2007 is almost upon us. Practitioners and taxpayers have had over a year now to familiarise themselves with the concept of reasonable care. A taxpayer who submits a return or other document containing an inaccuracy which gives rise to an underpayment of tax is liable to a penalty, unless that error is made despite taking reasonable care. The new penalties commence for returns with a due filing date on or after 1 April 2009, and affect income tax, corporation tax, capital gains tax, PAYE and VAT.

Before the new regime commences, we have more on penalties. Legislated for in the Finance Act 2008, the next phase of legislation dealing with inaccuracies on returns amends the original legislation to extend the penalty regime to all other taxes and duties. The draft commencement Order for these amendments has now been released for comment. This proposes a commencement date of 1 April 2009, with penalties applying to returns with a due filing date of 1 April 2010. So the amended (and considerably extended) penalty regime will come on stream exactly one year after the initial regime commences.

There is also a draft commencement order for Schedule 41 of the Finance Act 2008. This is the new penalty regime for failure to notify liability, and is of a similar structure to the penalties for inaccuracies, with an increasing rate of penalty according to the seriousness of the failure – whether a lack of care, deliberate or deliberate and concealed. This time, there is no zero penalty for cases of reasonable care – the penalty regime assumes that there has been a lack of care in the failure to notify. However, there is a possibility of a zero penalty if the failure is rectified within 12 months through unprompted disclosure.

The commencement date for the new failure to notify penalty is planned to be 1 April 2010. This date relates to when the obligation to notify arises, so current late notifications will still be subject to the old rules.

We also have open consultations on late filing and late payment for which new legislation will be enacted in the Finance Act 2009.