SA penalties hit 1.5m; more to come
HMRC this week confirmed that 1.5m individual taxpayers were hit with Self Assessment late filing and payment penalties following the 31 January deadline this year. And more are likely to be affected this year, says AccountingWEB tax editor Rebecca Benneyworth.
The figures obtained through a freedom of information request by request law firm and tax investigation specialist McGrigors this week show an 8% increase on the 2009-10 tax year. With 10m SA returns issued, 15% of taxpayers have been hit with penalties.
“That is far too high a percentage,” said McGrigors tax partner Jason Collins. “Not only are HMRC issuing fines at an increasingly worrying rate but they have now won the powers to impose dramatically increased fines.”
With late filing penalties starting at £100, the 1.5m penalties levied represent a minimum of £150m for the Exchequer. However, changes to the penalty regime mean that daily penalties after three months, premiums for inaccuracies, carelessness, concealment and offshore matters can could push the amounts up to £1,500 and 100%+ assessments on the tax due.
“A lot has been happening on penalities,” Rebecca Benneyworth told delegates at one of her Tolley’s CPD lectures in Crawley on Tuesday. A rolling upgrade to make the penalty system more consistent across all the tax regimes is now in full swing, with new measures coming into effect on 1 April and 1 October each year.
Many of the changes are set out in sections 26 and 27 of the Finance Act (No 3) 2010 and Schedules 55 and 56 of the Finance Act 2009. Some of the changes are themselves being modified, Benneyworth said, but the ones that will cause most consternation as Self Assessment season approaches are:
- Introduction of £100 late filing penalty for those who file a paper SA return late (more details here)
- Daily penalties of £10 per day for returns that are more than three months late, running for a maximum of 90 days
- Penalties of 5% of tax due for the return period (or £300 if greater) for prolonged failures (over 6 months and again at 12 months)
- Elimination of the cap based on tax due; so even if the outstanding amount has been settled by 31 January 2012, a late filing penalty will still apply
- End of the Steeden v Carver interpretation that allowed returns to be filed without a penalty on 1 February
- Offshore penalties apply to all tax regimes from 6 April 2011
- Insufficiency of funds and reliance on a third party will no longer be accepted as a reasonable excuse (Finance Act 2011, Sch 24, part 4)
- Higher “culpable” penalties: 70% of the tax due where a person fails to submit a return for over 12 months and has deliberately withheld information necessary for HMRC to assess the tax due; 100% penalty if deliberate with concealment (introduced April 2010 and applicable to all tax types - see HMRC elearning pages).
Construction Industry Scheme
The CIS penalty regime is already in force and retains many similar features to Self Assessment and PAYE penalties. But since it was a monthly regime, it started at £100 for the first late month, and then racheted up by £100 each month. In some instances where firms had neglected to register in the first place, they were being hit with notices for £20,000 and more. The highest reported at Rebecca Bennyworth’s lectures so far was £80,000 for a firm that had built up over 12 months for a contractor that had failed to register. Thankfully, CIS penalties arising as a result of late registration have been capped at £3,000 from 1 October 2011.
VAT penalties are in line for the same approach, starting with an immediate £100 late filing penalty and a similar treatment for late payments. But the date for enactment has not been set yet. April 2012 will be the earliest date, and if not then the penalties will most likely come into force in October, Benneyworth said. The default surcharge for late filing is the one to watch here. Many traders who are used to VAT repayments may think there isn’t a penalty for late filing - but when the new regime comes into force they will be in for an unwelcome £100 penalty surprise. See also: HMRC information page on VAT penalties)
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“Repayment traders will be fined for late returns for the first time,” said Benneyworth. “Some traders will get two penalties for the price of one. If their return isn’t in, they’re unlikely to pay on time.”
With small clients having to come into the online filing regime from next April - with the threat of filing penalties - many are likely to be confused by penalty notices they receive and will suffer disproportionately to larger firms because under the current system they often do not see a penalty until the fourth late return, she warned.
“Now is the time start thinking about your commication strategy with clients,” Benneyworth said.
Rebecca Benneyworth is touring the UK this autumn with her 'Practitioner's guide to tax practice' lecture. For details of these events and other seminars, consult the Tolley CPD website.
AccountingWEB’s Head of Insight has been with the site since 1999 and likes to spend his time studying accountants’ technology habits. When not nerding out, you can find him exploring obscure indie music and searching for the perfect organic sourdough loaf from his base in Brighton, UK.