File early to avoid risk of higher penalties

Taxpayers are being warned of a significant change to the penalty regime for the late submission of self assessment tax returns.

In the past, late filing penalties could be avoided if no tax liability existed (or by ensuring any tax liability was paid timeously). This is no longer the case.

A fixed £100 penalty will apply where a tax return is submitted even just a day late, regardless of the level of tax liability.  After three months, daily penalties of £10 per day can be applied (up to a maximum of £900).  After six months a further fixed rate penalty of £300 (or 5% of the tax due, if higher) would be imposed. 

Penalties of at least £1,300 can therefore be expected if a tax return is not submitted within six months of the filing deadline. None of these penalties can be avoided by paying the tax on time (although this would be recommended to avoid interest and surcharges on the tax).

If filing by paper, the normal deadline for submission of 2010/11 tax returns is 31 October 2011.  If filing online, the deadline is extended to 31 January 2012.  We recommend filing well before these deadlines to avoid the risk of being caught up in the new penalty regime.

The statutory 12 month time limit for HMRC to enquire into a tax return is linked to the actual date a tax return is filed, so there is no longer a reason not to file early.

If you would like to discuss this further, please contact your usual Johnston Carmichael contact, or Claire Maxwell, Tax Compliance Manager, 0131 220 2203.