If you don’t already know, the filing deadline for your 2010 tax return is 31 January 2011.

You need to act now if you have not sent in your form, but what are the penalties if you fail to send in the form on time or pay your tax late?

Penalties for late personal tax returns
A 2010 tax return sent in after 31 January 2011 will incur a penalty of £100. This applies in all cases including returns that show that no tax is due.

This is a change from earlier years. Previously, penalties were cancelled if all the tax was paid before the due date.

A further penalty of £100 is payable if a 2010 return is still outstanding on 31 July 2011.

You must pay any tax due shown on the return by 31 January 2011.

Payment of income tax – late payment interest
If you pay your tax late, the Revenue charges you interest. The current rate is 3%, charged as simple interest on a daily basis.

For example, if you owe tax of £10,000 and pay the bill 10 days late you will owe interest of £8.22 (£10,000 x 10/365 x 3%).

This is not viewed as a penalty because you are purely reimbursing The Crown for the use of the money at a commercial rate.

In fact, you could say it is quite a generous rate compared with borrowing from your bank or credit card.

Payment – late payment surcharges
Any tax owing from the 2009/10 tax year that remains outstanding on 28 February 2011 is liable to a late payment surcharge.

The penalty is 5% of the tax due for 2009/10 that remains unpaid at 28 February 2011.

Using the £10,000 example, this would give a penalty of £500 (£10,000 x 5%).

This is a flat penalty and would apply in full if payment is made on, say, 4 March 2011 or 4 June 2011.

A further flat rate penalty of 5% applies  to any tax owing for the 2009/10 tax year that remains unpaid at 31 July 2011.

Partnership tax returns
A partnership or limited liability partnership (LLP) needs to send in a partnership tax return.

Penalties are due on late forms.

All partners are fined £100 if a 2010 tax return is not sent in by 31 January 2011. A further penalty of £100 applies per partner if the return is still outstanding by 31 July 2011.

Reasonable excuse
In some circumstances, penalties may be waived if a tax return or tax payment is made late. Such examples could be a prolonged period of illness or family bereavement. The tax office must be notified.

It is sometimes possible to avoid surcharges by agreeing a payment plan to pay any outstanding tax over an extended period. This must be in place before the tax becomes payable.

Estimated returns
If you still do not have all the information to complete your tax return, you can submit an estimated return. You must tell the Revenue what items of the return are estimated and when you believe you will be able to resubmit the return with the actual figures. This should avoid the late tax return penalty.

Please contact us if you need help with your 2010 tax return.

Quite correctly, he never fails to mention that penalties may be charged if you are late. But he doesn’t tell you the full story. Firstly, here are the rules for filing tax returns and the penalties for being late:

• Returns must be filed online by 31 January
• The balance of any tax due for 2008/09 must be paid by 31 January 2010. In addition, a payment on account of tax for 2009/10 may be due by 31 January 2010
• A maximum £100 penalty will be charged for late returns. However, if the tax due is less than this, the penalty is capped at the amount of tax outstanding.

Further details are available on the Revenue website.

BUT here are some ways that you can avoid having to pay fines:

1. Pay the tax due, or an estimate, before 31 January. Even if the tax return itself is late, there will be no fine if the tax is paid by the 31st.
2. Submit a tax return with estimated figures on it. You can resubmit at a later date with the right amounts and pay no fine.
3. Come up with a ‘reasonable excuse’ for being late; e.g. something out of your control that has meant you could not get the tax return in on time, like your house (containing the relevant papers) burning down, your computer hard disc failing. Whatever you say must, of course, be true!

If you would like to discuss any of the above, or to find out more, please get in touch with Susan Kemish on 0118 9235811 or your usual contact at K&H.

For paper returns: 31 October

For electronic returns: 31 January in the following year

Payments dates for the tax due per your return are:

31 January following the tax year – any tax due or balance of tax due
31 January in the tax year – the 1st payment on account of tax
31 July following the tax year – the 2nd payment on account for the previous year

Interest will be charged on any tax paid late

HMRC also issue a 5% surcharge where the balance of tax has not been paid by 28 February

Penalties for late submission are:

An automatic £100 if return sent in after the deadline
A further £100 if the return is more than 6 months’ late
HMRC can also impose daily penalties, and if the return is more than a year late, then a further penalty based on the tax liability can be charged.

The above deadlines also apply to partnership tax returns (including Limited Liability Partnerships (LLPs)) and late Partnership returns attract a £100 penalty for each partner as well as a penalty for the return itself.

For full details can be found here.

Please contact Andrew Scott to discuss how we can help you with your tax returns.

Welcome news for taxpayers and the tax profession on tax return filing dates was unveiled recently at the ICAEW Tax Faculty’s Wyman Symposium, when Lord Carter announced that he would advise ministers to leave the date for electronic filing of self-assessment tax returns as 31 January but to bring forward the date for filing paper returns to 31 October.

In the March 2006 Budget, Lord Carter had recommended that from 2007-08 the filing period for paper returns should be reduced to six months – the new deadline should be 30 September – and the filing period for online returns should be reduced to eight months – the new deadline should be 30 November.

Pushing forward the dates by so much had created consternation in the tax profession, which is already having problems meeting the existing 31 January date where clients are not providing the required information on time.

Bringing forward the date for filing by so much would have been difficult if not impossible to meet in practice, and the main professional bodies lobbied hard for Lord Carter to change his mind. The lobbying appears to have worked.

Bringing forward the paper filing date to 31 October will still create problems, but the Government hopes that this will encourage a greater use of internet filing with the later deadline.

For further advice contact Andy Scott on 0118 923 5807.

The trial is designed to provide a light-touch regime and to provide a possible alternative to s9A enquiries in the future.

HMRC promises to ensure that tax advisers are copied in on any correspondence sent to their clients. This has not always happened in the past. Agents may wish to write to their clients to tell them about the new procedure in case they receive a letter.

The new procedure will include:

• Telephone calls from HMRC, preceded by letter, explaining any errors that taxpayers are considered to have made on their tax returns. HMRC will suggest how the errors can be resolved and how any underpayments of tax can be settled. Where agreement is reached with HMRC, the department will confirm the settlement in writing, together with a demand for payment.
• Correcting submitted tax returns, in accordance with information held by HMRC. The department will then write to the taxpayer for an explanation, and settlement of any unpaid tax if not appealed.
• The issue of questionnaires to taxpayers within certain risk parameters, to assess whether significant risks exist. This sounds a little like a fishing expedition and we will need to see how it works in practice.
• Getting taxpayers to audit their own returns and to consider risks around return entries. HMRC may even coach taxpayers on how to do this.
• Compliance visits to check on business record-keeping procedures.
• ‘Health checks’ to advise certain taxpayers about the risks of non-compliance.

There is no statutory requirement for taxpayers to cooperate with compliance visits and health checks, so any cooperation will be on a voluntary basis. However, a taxpayer risks facing a more formal investigation where he refuses to cooperate.

Although this less formal approach may save time and money, it is not clear how existing safeguards will work, though the existing appeal procedures will apply.

The promised light-touch regime may in practice turn out to be somewhat heavy-handed, and this may become apparent during the trials.

Commenting on the new regime, the Professional Contractors Group said: “One of the six proposed approaches would allow tax inspectors to change people’s tax returns without having to justify their action, leaving the taxpayer to prove that they do not owe the extra tax involved. We consider this unacceptable, especially given our extensive experience of dealing with the inequitable IR35 legislation. We believe that this approach and some of the others could be applied very unfairly.”

The Chartered Institute of Taxation has published its views on the new regime. Published 13 July 2006