Budget 2018: Penalties and assessment deadlines

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Some major changes to the penalty regime for late filing of tax returns are in the pipeline. The time allowed for HMRC to assess tax relating to offshore matters has also doubled.

The effect

At present, anyone filing a return even one day after the due date is subject to a penalty of £100. The same treatment applies to both persistent serial offenders and taxpayers who normally get their returns in on time but make the occasional slip.

The new rules aim not to charge a cash penalty for occasional mistakes. It will do this by bringing in a “points” system (similar to speeding penalties for motorists).

If you miss a filing deadline HMRC may issue you with a point. They will have to do this within the 12 months following the missed deadline. You can challenge the award of a point if you had a reasonable excuse for the delay.

If you accumulate two points, you will get a penalty every time you file a late return. The financial amount has yet to be fixed but the idea is that it will be more than the present £100.

Like points on your driving license, these points will expire over time. It will take 24 months after the missed deadline for a point to expire. However, once you reach the two-point maximum, you stay at that level until you have had a clear two years of timely filing under your belt and have no outstanding returns.

Timing

It has not yet been announced when the penalty changes will apply to income tax self assessment (ITSA) returns: the plan is to implement them first for VAT with effect from 1 April 2020 and to extend them to ITSA at some stage thereafter.

Deliberately withholding information

A new penalty will be introduced to take effect where someone fails to file a return on time in order to deliberately to withhold from HMRC information which would enable or assist HMRC’s ability to assess his liability to tax.

Where the only tax at stake is “onshore”, there is a scale of tax-geared penalties similar to those currently in force for deliberate and careless mistakes in a tax return.

There are augmented scales where the tax relates to offshore sources of income, offshore assets and offshore transfers.

The penalty will, initially, be based on HMRC’s best estimate of the tax due. If a return is subsequently filed and HMRC’s estimate proves to have been excessive, the penalty must be recomputed. If the estimate had been insufficient, HMRC may issue a supplementary assessment of penalty.

The level of penalty starts at 70% of the tax for deliberate but not concealed obstructions and will be 100% of the tax for omissions which are deliberate and concealed. Either penalty may be reduced dependent on subsequent cooperation and disclosure, either prompted or unprompted, but never to below £300.

The clear similarities to the current system (FA 2009 Sch 55) for deliberate errors are no mistake: the aim is to put taxpayers who try to conceal their liabilities by not filing their returns on the same footing as those who do so by falsifying them.

Offshore assessing time limits

Currently, HMRC can only raise assessments to income tax, capital gains tax and IHT within four years of the end of the relevant tax year. The limit is six years where tax has been lost through carelessness by the taxpayer (or someone acting on his behalf) or 20 years if there has been deliberate non-compliance.

For offshore matters, the assessing periods are changing. With effect from 2013/14 (where there has been carelessness) or 2015/16 in all other cases, the assessing window will now be 12 years where tax has been lost. The time limit where deliberate non-compliance is concerned will remain at 20 years.

Offshore matters cover income arising or assets located outside the UK, and activities carried on wholly or mainly offshore.

The aim is to allow HMRC sufficient time to gather information and to analyse and understand what may be complex situations.

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03rd Nov 2018 16:04

The new penalty regime has been delayed for at least a year according to para 2.54 of OOTLAR. So it seems that the points based penalties for VAT won't come into effect from Apirl 2020, but may come in from April 2021

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