As the new tax year approaches, Taxpayers who fill in Self Assessment tax returns will shortly receive their 2010/11 notices and paper returns. These will include information on the new penalty framework and how it will significantly increase penalties for those who file and pay late. A tax return filed six months late could attract a penalty of at least £1,300!

HMRC’s Stephen Banyard said:

“The vast majority of people don’t have to pay penalties because they send in their return and pay on time. But there are always a small number of people who have avoided filing or paying on time. HMRC spends a lot of time pursuing late returns and getting involved in unnecessary appeals work. We want to focus our resources on more productive work such as catching criminals and collecting tax.

The old £100 penalty was not much of a deterrent and these new penalties, which increase over time, will get people to submit returns as soon as possible. Basically the greater the delay, the greater the penalty.”

Late tax returns

HMRC will still charge a penalty of £100 if your return is late – and you may still appeal against the penalty if you have a reasonable excuse.

At the moment the amount of this penalty is 'capped' for some customers, this means that the penalty can't be more than the amount of tax unpaid at 31 January. This 'capping' applies to tax returns for individuals, trust and registered pension schemes tax returns. It doesn't apply to late Partnership tax returns.

When the new penalties are introduced, no penalties will be 'capped' so the full penalty of £100 will always be due if your tax return is late. It's expected that the change will apply to the 2010-11 tax return. This is due on the 31 October 2011 if sent on paper and 31 January 2012 if filed online.

If you still don't send your 2010-11 tax return back, you'll also be charged the following penalties:   

• Over three months late - a daily penalty of £10 per day up to a maximum of £900
• Over six months late - an additional £300 or five per cent of the tax due if this is higher
• Over twelve months late - a further £300 or a further five per cent of the tax due if this is higher

Late payments

The first two late payment penalties will be similar to existing penalties, so from January 2012 HMRC may charge the following penalties if you pay your tax late:

• a 5 per cent penalty, if you haven't paid the tax due on 31 January 30 days later
• a second 5 per cent penalty, if you haven’t paid the tax due on 31 January six months later

In addition there will be a third 5 per cent penalty, if you haven’t paid the tax due on 31 January twelve months later. This will apply from January 2012.

These will all be called 'late payment penalties'.

The above penalties are in addition to charging interest from the date the tax was due until the date your payment is received.