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HMRC internal manual

Debt Management and Banking Manual

Debt and return pursuit: SA: daily penalties: introduction to late-filing penalties

Where a taxpayer fails to file a tax return by the appropriate filing date, HMRC has statutory powers to impose penalties.

These penalties are:

  • fixed penalties
  • daily penalties
  • tax geared penalties.

New late filing penalty process for Tax years 2010-11 onwards

For tax years 2009-10 and prior each step of the penalty process followed on from the last (a fixed £100 penalty was followed by a determination or Daily Penalty) and in some instances it was a legal requirement that a certain step had taken place before the next was possible. Under the new process legislation states only that the penalty date has passed and if one or more penalties apply they can be charged at the same time. The dates shown below are where the automatic process is not interrupted at any stage.

Fixed penalties

These are charged automatically for the year of liability ended in the previous calendar year (CY-1).

For the years 2010-11 onwards

In the vast majority of cases the penalty will be applied automatically once the filing date has passed

  • 01 November for paper filed Tax returns ( the penalty will not be charged until the return is logged or 01 February if this is earlier)
  • 01 February for on line filed tax returns where the filing date was 31 January
  • 3 months and 7 days after the issue date for late issued tax returns.

The automatic process will look to raise a penalty for (CY -1) to (CY -4) for Tax returns issued outside this limit any penalty will need to be applied manually. For example a Tax return issued for 2010-11 will only receive an automatic penalty if issued before April 2015.

For the years 2009-10 and prior

Any fixed penalty arising on earlier years are raised manually by a HMRC officer.

Fixed penalties are charged in 2 phases

  • the first fixed automatic penalty of £100 is liable from the day after the filing date (usually 1 February for online returns and 1 November for paper returns). In the case of a partnership return the £100 penalty is charged on each partner
  • the second fixed automatic penalty of £100 will be charged if the return has not been filed after 6 months following the latest filing date (i.e. if a paper return is not filed by 31 January then this later date is used as the latest filing date).

All years

Any fixed penalties that have been cancelled because the return has been re issued, will need to be re imposed on the record manually by an officer.

The fixed penalties are due for payment 30 days after the issue of the penalty notice. The taxpayer has a right of appeal and this must be made within 30 days of the issue of the notice. An additional 5 days is allowed for payment before the case comes to IDMS for collection.

Daily penalties

For tax years 2010-11 onwards

Following a review of HM Revenue and Customs powers new legislation was introduced. Under Schedule 55 Finance Act 2009 the way in which HMRC applies its late filing penalties saw major changes particularly in respect of raising Daily Penalties. This change only applied to Tax returns for 2010-11 onwards with the previous legislation and guidance remaining for 2009-10 and earlier.

Where a customer has not filed a Tax return 3 months from the return due date Daily penalties will start to accrue for a period up to 90 days at a rate of £10.00 per day, the rate is fixed and can not be changed (except by legislation) and in the majority of cases this will be an automatic process. There is no longer a requirement to apply to the Tribunal to charge a Daily Penalty or for a “fixed £100 penalty” to have been charged before applying it. A Revenue Determination can be considered at any time during the period of which a Tax return remains outstanding but it is not a requirement before a Daily Penalty is applied.

For tax years 2009-10 and prior

Daily penalties can be imposed at a rate not exceeding £60 a day for each return if the taxpayer continues to fail to file. In partnership cases, up to £60 per day for each return may be imposed on each partner.

A fixed penalty of £100 must have been charged before a daily penalty can be imposed and as a general rule raising a Revenue determination should also have been considered. A daily penalty can, however, be charged before the second fixed penalty is due, and if so then the second fixed penalty should not be imposed. Setting the daily penalty signal will prevent the second fixed penalty from being charged.

An Officer of the Board (senior debt manager or higher) authorises and decides what the amount of the penalty should be under Section 100 TMA1970 (determining the penalty).

HMRC seeks a direction to impose a penalty under Section 93(3) TMA1970 from the Tribunal Service. By signing the application the tribunal officer is authorising HMRC to charge the taxpayer with a daily penalty.

Tax geared penalties

For tax years 2010-11 onwards

There are 2 sets of late filing tax geared penalties usually applied automatically 6 months and 12 months from the return due date. The amount of the penalty will be 5% of the amount shown on the tax return or £300 which ever is the higher. Should a tax return or amendment be received after the £300 is imposed an automatic review will be made and if the revised figure is above £300 an additional penalty will be charged.

Where the return has not been submitted 12 months from the due date and where a taxpayer is found to have withheld information deliberately or deliberately with concealment by not submitting a return, a higher penalty up to 100% of the liability that would have been shown on the return in question can be charged.

For tax years 2009-10 and prior

These penalties apply when the submission of the return is delayed beyond the anniversary of the filing date. The penalties are based on the liability to tax which would have been shown in the return. These penalties are payable without regard to the period for which daily penalties may already have been imposed.

These penalties are imposed by Customer Operations (the processing office).

Supporting guidance

Comprehensive guidance on penalties and the penalty functions can be found in the SA Manual under the Business Area ‘ Interest/Pen/Surcharge’.