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Mark McLaughlin asks whether or not HM Revenue & Customs' new penalty regime is fair or proportionate.

No Sense of Proportion

HM Revenue & Customs (HMRC) recently issued a press release about new Self Assessment penalties for late tax returns and late payments. The press release is reproduced at the end of this editorial. As far as penalties for late filing of tax returns is concerned, the first penalties under the new regime will apply to those taxpayers who file 'paper' returns to HMRC (as opposed to submitting them online), as the normal filing date for paper returns for 2010-11 is 31 October 2011, as opposed to 31 January 2012 for online returns.

Unlike the previous penalty regime, taxpayers will face a penalty for filing a late return even if there is no tax liability for the year. The same applies even if any tax liability for the year has been paid on time. But that's not all. A taxpayer who is twelve months late in filing the return faces a penalty of £1,300 or more. Unfortunately, this penalty takes no account of the taxpayer's level of income or ability to pay. So a £1,300 penalty could apply equally to an elderly pensioner with a modest income, and to a billionaire with no UK tax liability (e.g. due to non-resident status).

I have a relative who is in her late 70s. HMRC issued her with a tax return for 2010-11, even though it appears that she does not need one. Nevertheless, because she has been issued with a return she must fill it in and send it back. She has no tax agent and no computer, so came to me for help because she was worried about submitting her paper tax return on time. And I suspect that she is not alone.

The above penalty regime is but one example of HMRC's bewildering array of new powers. I have real concerns that in their quest to amass those powers, the Government and HMRC somehow lost a degree of perspective and proportionality in an attempt to close the perceived 'tax gap'.

What are your thoughts on the new tax return penalties, and on HMRC's powers generally? Please send us your comments and feedback on the subject.

HMRC Press Release NAT 73/11

"HM Revenue & Customs (HMRC) is reminding individuals and businesses about new Self Assessment penalties for late returns and late payments, which come into effect this autumn.
The changes will affect Self Assessment returns for 2010/11, and all future financial years.

The new penalties for late Self Assessment returns are:

• an initial £100 fixed penalty, which will now apply even if there is no tax to pay, or if the tax due is paid on time;
• after 3 months, additional daily penalties of £10 per day, up to a maximum of £900;
• after 6 months, a further penalty of 5% of the tax due or £300, whichever is greater; and
• after 12 months, another 5% or £300 charge, whichever is greater. In serious cases, the penalty after 12 months can be up to 100% of the tax due.

New penalties for paying late are 5% of the tax unpaid at:

• 30 days;
• 6 months; and
• 12 months.

Interest will also be charged on top of these penalties.

The tax return deadlines remain unchanged – 31 October for paper and 31 January for online returns. The deadline for paying any tax due also remains the same at 31 January.

Further information on the new penalties is available from the HMRC website at Tax Return Deadlines and Penalties

For help and advice on completing a return, visit Self Assessment or call the Self Assessment helpline on 0845 9000 444."