Old Mill warns of HMRC penalty trap

James Fowler, business service manager for West Country IFA and accountants Old Mill Group, said the HMRC has recently been cracking down on late tax returns, with 1.5m taxpayers charged for late payments in January 2011.

There was also an 8 per cent rise on the previous year, totalling £150m of penalties going straight into the Treasury’s coffers.

He urged sole traders and businesses who have not met the paper return deadline of 31 October to file their self-assessment returns online before 31 January, even if they are not expecting a liability to be due.

This is because the HMRC has changed the penalty system in recent years to make it more consistent across all the tax regimes, which means taxpayers will be charged a penalty for late submission even if they have already paid their tax by 31 January or if no liability is due.

The standard late filing penalty is £100, but the government has also introduced daily penalties of £10 a day for returns that are more than three months late, up to a maximum of 90 days, and a minimum £300 penalty, or 5 per cent of tax due, for prolonged failures over six and 12 months.

Mr Fowler said: “With the government still finding it difficult to manage the fiscal deficit, compounded by the significant cuts in the headline corporation tax rate, it would appear that the HMRC are looking to use the amended penalty regime to supplement income and bolster the income tax take.”