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SA penalties hit 1.5m; more to come

11th Oct 2011
Head of Insight AccountingWEB
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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:

Self Assessment

  • 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

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)

“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.


Replies (12)

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By Lord Lucan
11th Oct 2011 22:41

Fight fire with fire

In my view the increasingly draconian penalty system should, and hopefully will, lead to two things -

More challenges to the legality of these penalties. No one can be penalised just because HMRC allege they failed to fulfil some requirement. HMRC must PROVE they failed, (Article 6 HRA) and with post sitting unopened for weeks at a time and an online system which is full of bugs I suspect HMRC are going to find themselves losing a lot of cases.Hopefully more accountants will take the same attitude towards HMRC as HMRC are taking towards taxpayers, that is, zero tolerance.  We may not be able to "fine" HMRC when they foul up, but I hope more accountants start billing HMRC for time spent correcting HMRC errors, and follow it up through the courts if HMRC fail to pay.

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12th Oct 2011 10:45

Penalty rates

“That is far too high a percentage,” said McGrigors tax partner Jason Collins.

Why is it far too high a percentage? Accepting that some penalties will always be raised in error, and that there will have been reasonable excuse (whatever that is) in a number of cases, it has to be assumed that the majority of the penalties were correct. This means that the taxpayers must have been at fault - as a result of their, or their agent's, failure to deal with matters on time. We may not like the legislation, we may consider it too harsh, but it is what it is. HMRC cannot be held to account for the failure of the taxpayer or his agent.

Rebecca - you are absolutely right - agents have got to get the message through to their clients.

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By Lord Lucan
12th Oct 2011 09:51

Penalties should not be "raised in error". There is no excuse for errors by HMRC (as they dont allow for errors by taxpayers)."Reasonable excuse" needs to be defined by the courts as HMRC clearly have no concept of what a reasonable excuse is. I have it in writing that HMRC do not consider a taxpayer having a heart attack and laying in intensive care to be a "reasonable excuse".

While accountants act like sheep and don't stand up for what is right & just rather than what HMRC "demand" their bully-boy tactics will continue.

Whilst a penalty for not filing on time might be justified in some cases there can be no justification whatsoever for the "new" regime of penalties even when no tax is owed.  Indeed the whole new regime of daily penalties etc etc is unjust and, in my view, could and should be challenged through the courts - or do we think it's right that confused old age pensioners barly scraping by should be screwed for hundreds, possibly thousands of pounds, just because they don't understand the tax system?


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Replying to ShirleyM:
12th Oct 2011 12:13


I do resent that remark, John ;)

I was merely pointing out that HMRC cannot be held responsible for the failures of the taxpayer or their agent. That hardly makes me an HMRC fan!

Likewise, whilst I may disagree with the practice of seeking every opportunity to have a go at HMRC, that does not make me a supporter of the Department.

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By ShirleyM
12th Oct 2011 11:36

VAT penalties

A little off topic but the application of VAT penalties has changed dramatically, too.

I was catching up on my Mercia lectures yesterday, and it seems we now have to make a full disclosure of VAT errors in writing now (even when under £10,000), and correction on the next VAT return is NOT considered sufficient disclosure anymore. If the error is just corrected our clients can still receive penalties for the error of upto 15% of the underpaid VAT (if I understood correctly). Any overpaid VAT will not be offset for penalty purposes.

Am I missing some important updates because I didn't know about this until I listened to the lecture?

Thanks (2)
John Stokdyk, AccountingWEB head of insight
By John Stokdyk
12th Oct 2011 11:40

Let's see what other members say

Thanks both for such cogent summaries from Lord Lucan and BKD of what might for shorthand purposes I might call the anti- and pro-HMRC views. I think many regular members will be quite familiar with your views by now.

Perhaps it's time to open the discussion up for other members to share their experiences and observations. If there are likely to be problems with the ongoing changes to the penalty regime, solid evidence will help those who may want to lobby for further adjustments.

This summary really did just skim the surface of a detailed, practical lecture on the workings of the penalty reforms across all the tax systems. There are some gains for taxpayers and agents, and on balance probably more losers, as his Lordship suggests. But BKD is correct to point out that the Draconian nature of the regime is down to the people who drafted the laws and the MPs who passed them.

Rebecca pointed out a couple of examples where the regime made little practical sense (what's the difference - aside from an extra 30% penalty - between deliberately withholding information and witholding it with concealment?) and did pose the question whether the new regime is designed to act as a deterrent/stimulus for behavioural change, or a money-raising exercise.

Thanks (3)
Jennifer Adams
By Jennifer Adams
12th Oct 2011 14:51

Why type of taxpayer is being fined?

What would be interesting is to find out how many of those late Tax returners had agents. Bet hardly any.There is a limit to how much you can baby a client tho. Even my nagging doesnt work sometimes! 

The £100 penalty for a late paper return whether a refund or not is harsh on the pensioners etc who dont have access to computers. I know HMRC want to push everyone to filing online.

The VAT penalties are fair enough - the businesses registered for VAT should know what they are doing and its not their money after all.

HMRC need to advertise these penalties to the public a bit more (say in the more popular press/radio etc) - unless I point them out to my clients they havent a clue. As Jason Collis says the % is too high. Why is it that % - can a break down be obtained as to the type of taxpayer who is being fined. Are they the 'first timer' for example who has never filed before or the pensioners etc etc  - HMRC computer should be able to make a distinction - those who need to be helped not penalised. 


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By johnjenkins
12th Oct 2011 15:13

Fines for this fines for that!

My wife and I were cleaning out the offices last night (this is a little off topic but you can see where it's all leading) 7.39pm there were two traffic wardens taking photos of parked cars in a goods vehicle only loading bay. Now our little town doesn't have GV's loading or unloading after 5.30 and people park to have a meal etc. The point I'm making is that if Government and councils etc. are sticking 100% to the rules they should expect a backlash. The tax payers of this country will only stand so much so this time next year we could be in for another election.

Is it 100,000 people needed to sign a petition in order for Parliament to debate a motion of "no confidence".

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By ireallyshouldknowthisbut
14th Oct 2011 12:05

What I would find more interesting is what % of the 1.5 million fines have been withdrawn compared to earlier years?

95% of the fines arriving in my office are wrong and successfully appealed, or reduced to zero as the tax payer has no liability.  

I am actually a fan of the new SA penalty regime, its an empty threat to someone on £100k a year that they will pick up a £100 fine for late filing. It an even emptier one when they know they have a rebate due and it will be cancelled.  The only thing I feel uncomfortable with is what happens if the tax payer genuinely didn't know (eg due to an address change) that they have missed a deadline and has rolled up £2k+ of fines.

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By pauljohnston
17th Oct 2011 14:51

Off subject slightly

but I have two penalty notices on my desk.  These relate to a late filing of a Partnership Tax Return.

HMRC insist that it sent out a notice in March (never received) and raised the penalties in July.  We appealed because we were told not to submit until we had a UTR and this have been turned down for the reason above and we are off to review.

This will become a bigger problem penalty wise under the new scheme.  My advice therefore for the future is to submit on paper when there is no UTR and state why with the submission.  Yes the £100 penalty may be raised for it being non-electronic but it is much easier to show HNRC that it was its fault and no further penalty can be raised.

I am disatisfied in the way those whom are waiting for HMRC have to appeal againt a penalty has to be raised (and the attendent costs) becausde of a HMRC mistake/in action. Perhaps a payment of £100 compensation should be forthcomming, but this would probally mean an even heavier hand in dealing with incorrect penalties.


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By I'msorryIhaven'taclue
18th Oct 2011 12:40

Civil Disruption

I too am fed up with the severe penalty culture, be it delevered from HMRC or traffic wardens.

It makes you hanker after the Iron Lady, who for a time rid this country of such jobsworths and their red tape, thereby promoting an environment in which small businesses might have a level playing field. Whereas the current mob behave like the Sheriff of Nottingham.

Reciprical action, nailing HMRC to the cross when they make a mistake, might go some way if someone is prepared to put up a service for wronged taxpayers, and indeed their small-firm agents, perhaps along the same lines as the ambulance-chasing solicitors who advertise on day-time TV ("Hey, you, tripped over your feet at work recently and it wasn't your fault? You deserve 100% compensation!"). Otherwise, for many small practitioners, it's David v Goliath because the Revenue have well-trained people to rebuff such claims.

How about we all of us file tax returns, or PAYE returns for that matter, on the same morning in January and swamp the Revenue with work? And the same for payments: if everyone was to pay on the very same day the Collectors would have peaks and troughs of activity which would disrupt their work schedule and, hopefully, cost them a good deal of time and money. All of which might cut a lot more ice in expressing our disatisfaction than might a petition.

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By johnjenkins
18th Oct 2011 14:54

Civil Disruption

is already with us. OK it started in New York but it's something that has never been co-ordinated across the world as much. The last time must have been WW2. Those that ignore the signals are in for a big fright. I'm not talking about anarchy I'm talking about the end of communism and capitalism. What to replace them with I hear you say? Simple common sense would do for a start. We are seeing seeds growing in the middle east, let's not contaminate the growth with hypocrisy and greed.

It's time the political leaders got together to sort out the world's finances and stopped shying away from what they have got to do.

There is no reason at all why ordinary people should have to pay for the mistakes of greedy financial institutions.

There's nothing wrong in making a healthy profit but what we are seeing is nothing short of legalised robbery.

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