UK: Budget 2009 - Penalties For Late Filing Of Returns And Late Payment Of Tax

The measure

The penalty regime for late filing of returns and late payment of tax will become more harmonised in Finance Bill 2009. The exact penalties to be applied will depend on, for example, the type of tax and the extent to which any payment or return is late. Some of the key points to note include:

• Penalties for late filing of returns are a combination of fixed and tax-geared penalties - with the tax-geared penalty strictly up to a maximum of 100% of the tax due.
• Penalties for late payment of annual or occasional payments (e.g. personal or corporate tax liability) will be 15% of the tax unpaid where the tax is unpaid more than 12 months after the due date.
• Penalties for late payment of taxes deducted through PAYE will depend on the number of defaults in any 12 month period. The first late payment will not trigger a charge but subsequent defaults will trigger a penalty of at least 2% rising to 5% of the tax unpaid. Additional penalties will be levied if the tax is still unpaid at 6 months (5% of the tax) and 12 months (a further 5%).

The penalties above can be suspended in circumstances where the taxpayer enters into an agreed 'time to pay arrangement' with HMRC. In addition, the taxpayer can appeal against all penalties based on the grounds of reasonable excuse.

Who will be affected?

All taxpayers.

When?

The changes will be implemented over a number of years, starting in April 2010.

Our view

The changes introduce a much tougher approach to penalties and it will be increasingly important for taxpayers to put systems in place to ensure tax returns are filed, and payments made, on a timely basis.

It is perhaps timely give the current economic climate to see HMRC is willing to suspend penalties for companies in financial hardship. What is less clear is in what circumstances, HMRC will accept that the taxpayer have a 'reasonable excuse' for late filing.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.