Taxpayers facing millions in fines for late filing – even if they owe no tax

Publications that covered this story include the Independent, 26 January, and the Sunday Times, 28 January.

  • Over one million automatic penalties expected to be issued by HMRC
  • Changes to penalty system means that even those who don’t owe tax will be targeted

Taxpayers who do not complete tax returns by 31 January 2013 will be hit by hefty fines under HMRC’s new, tougher penalty system.

Self-assessment taxpayers that do not owe tax also have to file a tax return or face fines under the new system.

The new penalty system (see tables), which was first used last year, has already earned HMRC hundreds of millions of pounds more in penalties than in previous years thanks to higher and more numerous penalties sent to taxpayers for missing key deadlines.

Mark Giddens, head of private client services, London, says: “The new penalty system means fines for taxpayers late in submitting forms even when they have no tax to pay, which will come as a shock to those receiving unexpected penalties.”

“HMRC doesn’t produce figures on how many taxpayers failing to complete forms do not owe tax, but the penalty bill could run to millions of pounds.”

He adds: “Even taxpayers who are owed money by HMRC in the form of a rebate could now be fined for not filing a tax return on time.”

Despite being in operation for its second year, awareness of the new penalty system is still very low.

Mark comments: “A lot of taxpayers know instinctively when they don’t owe tax and will be very shocked when they receive a penalty for not filing. There is still very low awareness amongst taxpayers of the new penalty structure.”

“HMRC has a lot of extra work ahead of it to make sure taxpayers know exactly which penalties they could face.”

Each year, between one and one and a half million tax returns are not completed by the 31 January deadline. Late filing penalties totalled over £20.8m in 2009-10, up from £19.1m in 2008-9.

However, under the new penalty system, which has higher and extra penalties (for submitting forms three, six, and 12-months late), total penalties will have run into the hundreds of millions of pounds last year – and will this year too.

Mark says: “Being one day late in filing your return will cost you £100, even if there is no tax due. Further penalties apply if your return is three, six or twelve months late which can add up to £1,600 to your bill – in addition to interest and surcharges.”

“HMRC will accept a reasonable excuse for late filing but they have a very strict interpretation of a ‘reasonable excuse’. Late filing, especially persistently late filing, is likely to be picked up on by HMRC, and will draw their attention to your future tax affairs.”

Taxpayers can reduce problems with filing their tax return by planning in advance and being organised.

Mark says: “The best advice is to be organised. Put all information relevant to your tax return somewhere safe. Don’t leave things too late either. Filing a return isn’t something you should normally be leaving to mid-January.”

“If you have left it to the last minute, try not to panic. Make sure all income and gains are reported, and make sure you don’t make simple mistakes like confusing ‘net’ or ‘gross’ tax figures.

If you always struggle with your tax return – either because of its complexity or through lack of time – think now about engaging a professional adviser ready for the next one”.

Old Penalty System:

Delay Penalty
1 Day £100 but reduced to nil if no tax payable
6 Months £100

New Penalty System:

Delay Penalty
1 Day £100 even if no tax due.
3 Months £10 for each following day, up to a 90 day maximum of £900. This is on top of the £100 1-Day penalty.
6 Months £300 or 5% of tax due, whichever is the higher, and all the above penalties.
12 Months £300 or 5% of tax due, whichever is the higher. In some cases up to 100% of tax due may be demanded instead. This is on top of all the penalties above.