Please note the significant changes to the penalty regime on late filed tax returns for previously the cost of filing a tax return late would be only a couple of hundred pounds. However, from 6th April 2011 the amount of any penalty is no longer reduced by reason of an individual owing no tax or national insurance.

Whereas, in the past it was common for a late tax return to result in no actual penalty from 6th April 2011 the following penalties will be charged:-

  • Where a return is 1 day late – an initial penalty of £100
  • Where a return is 3 to 6 months late – a 2nd penalty of up to £1,200**
  • Where a return is 12 months late – a 3rd penalty of at least £300**

** The 2nd and 3rd penalties will be higher still if the annual tax and national insurance liability on the tax return exceeds £6,000; which to the self employed equates to taxable profits of £28,000 in 2010/11.

I include below two illustrations of how the new penalties rules will impact of those filing late:-

Jack files 4 ½ months late

Jack made a loss in the 12 months to 31 December 2010 and forgot to file his tax return. After some delay Jack files his 2010/11 tax return 4 ½ months late on 18th May 2012.

Despite the fact that Jack did not owe any tax or NIC, the late filing penalty is £270.

Simon files over 6 months late

Simon closed his business in 2009/10 (filing his 2009/10 return on time) but he failed to notify HMRC of his change of address. Simon later realised he had been issued with a 2010/11 tax return and this was filed over 6 months late on 2nd August 2012.

Despite the fact that Simon did not owe any tax or NIC, the late filing penalty is £1,300.

The above is an extract from a letter sent to all clients advising them of penalty changes.

copyright ©2011

This article is for discussion purposes only and does not represent advice on which you should act without consulting a professional as tax legislation is complex and changes frequently.

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