HMRC has signalled it may be considering a more lenient approach towards people who are late sending in their self assessment income tax return, by removing the £100 penalty for missing the deadline for those who have made a genuine effort to get the information in on time but have slipped up
Currently anyone who fails to submit a paper return by 31 October or file online by 31 January receives an automatic £100 fine. However, HMRC has published a consultation document outlining a number of improvements to the way the tax authorities apply penalties for failure to pay or meet deadlines for returns or registration in light of the continuing move towards digital tax returns.
This states: ‘The current system makes no distinction between a customer who misses a deadline by a day or two and someone who has made no attempt to comply at all. There are “reasonable excuse” provisions that can remove penalties, but the rules may need updating to better support those genuinely wanting to comply.’
HMRC said its aim was ‘to help the honest majority to get their tax right and make it hard for the dishonest minority to cheat the system’, and it wanted to distinguish between ‘deliberate and persistent non-compliers and those who might make an occasional error’.
The current HMRC rules on penalties state that for return years 2010/11 onwards, if the return is not filed by the due date a late filing penalty of £100 is charged. The penalty charge is a fixed amount and will not be reduced (capped) because the tax liability is less than the penalty, or there is no tax liability or a refund is due.
Last month, HMRC figures showed that some 890,000 people failed to get their return in by the end of January and so would be liable for a fine under the present approach, amounting to a sizeable penalty pot of £89m.
HMRC’s consultation document also concedes that some individuals are late sending in return but have no tax to pay, which means some receive a penalty where there is no tax at risk.
As well as considering whether individuals who are a day or so late with a return should be let off any penalty, HRMC says it is also looking at whether penalties should be applied for what it calls ‘an uncharacteristic failure by an otherwise compliant customer’.
This would also include people who make a simple mistake when entering a particular tax regime for the first time, or those who need extra help. For example, over a million more people had to submit self assessment returns after changes to child benefit payments for higher rate taxpayers, with 200,000 estimated to have missing the filing deadlines and so incurred fines.
The department is looking at what it calls ‘non-financial sanctions’ as an alternative to financial penalties. One option could be a progressive system similar to penalty points for motoring offences, so that initial financial penalties are avoided, but more substantial penalties then apply for more serious failures or for persistent non-compliance with obligations.
HMRC says that when taxpayers have a personalised digital tax account showing all the taxes they need to pay in one place, it could consider moving away from applying penalties on a tax-by-tax basis towards a penalty system that is based on the overall position of the individual.
In the meantime, the Low Income Tax Reform Group (LITRG) is reminding people who missed this year’s 31 January deadline that there could be extenuating circumstances which mean they may be able to avoid a penalty by claiming a ‘reasonable excuse’ for filing their tax return late.
Such reasons include a taxpayer having a life-threatening illness that prevented the tax return being lodged; the death of a partner shortly before the deadline; unexpected or unforeseen postal delays; or important documents being lost due to theft, fire or flood which could not be replaced in time.
Robin Williamson, technical director of LITRG, said: ‘It is essential that taxpayers inform the department of the reason for filing late and ensure that their returns are lodged online as soon as possible, because the law on reasonable excuse requires that a default must be remedied within a reasonable time after the excuse has ceased.’
HMRC’s consultation on possible changes to the penalty regime closes on 11 May 2015 and details are here:
Full details of the current HMRC penalty system are available at https://online.hmrc.gov.uk/information/help?helpcategory=selfAssessment&helpid=penaltiesHelp
