New penalties will start to bite soon…

I am a few years behind with my tax returns – I have been up the wall with work and let things slide a bit, but I don’t think that I will have any tax to pay anyway because my tax is deducted under CIS. The tax people keep sending me penalty letters, but these will all go away when they see I have no tax to pay, won’t they?

The taxman has armed himself with a new range of penalties to ‘encourage’ late filers to toe the line.

Under the new penalty regime, the penalty for late filing for personal tax returns will no longer be ‘capped’ at the lower of £100 and the balance of tax outstanding at 31 January. The penalties for late filing will now include:

• £100 automatic penalty immediately after the due date for filing (whether or not the tax has been paid).

• Daily penalties of £10 per day for returns that are more than 3 months late, running for a maximum of 90 days .

• Penalties of 5% of the tax due (or £300 if greater) for prolonged failures (over 6 months and again at 12 months).

• A higher penalty of 70% of the tax due where a person fails to submit a return for over 12 months and has deliberately withheld information.

• This becomes a maximum 100% penalty if the behaviour is deliberate with concealment.

What this means is that, whether or not you have any tax to pay, and even if you are due a refund, if you omit to file your tax return for the year ended 5 April 2011, you could shortly be facing fines of up to £1000.

It is also my experience that the tax authorities are now pursuing penalties in general with far more vigour. Although HMRC has said that they ‘want tax returns in – not penalties’, it has been calculated that they are likely to raise around £70 million a year under the new regime.

A good accountant will be able to help you keep things in order. My advice is don’t delay.