£100 fine for late tax return may be waived

Sarah Coles
Workers' pay 'up in real terms'
Workers' pay 'up in real terms'

HMRC will waive the £100 penalty for filing your tax return late, providing you have a reasonable excuse. Previously, establishing you had a good reason to miss the deadline involved a two-week investigation into your financial affairs. However, reports are claiming that the taxman has decided to ditch these expensive exercises and simply believe taxpayers in future.

People who pay late will still need a good reason for doing so. The taxman defines it as something outside your control that stopped you paying on time. This includes things such as computer failure, hospital stays, postal delays, issues with HMRC's computer systems or the death of a partner. It doesn't include things like losing your paperwork, forgetting to pay, or being on holiday when the deadline hit.

If you miss the deadline because of a lack of organisation, you'll still have to pay £100. And if you haven't submitted the form that was due on 31st January this year, you won't be let off unless you have a very good reason.

The change

However, the Daily Telegraph says it has seen an internal memo which described the investigations process as 'lengthy' and said it was 'looking again' at whether it made sense given that the 'overwhelming majority' of appeals were accepted.

The memo reportedly also says that the organisation has decided to take a 'more proportionate' approach, when deciding whether or not to let someone off paying their penalty. This would mean that in most cases, instead of HMRC ploughing hours of their time into checking whether your excuse is valid, they will accept the grounds for appeal. Any interest on overdue amounts would still be payable, but the fine would not.

It makes perfect sense, as a two-week investigation often costs far more than the £100 they are chasing. Staff would then be freed up to chase major and persistent tax avoidance and evasion.

It reflects a change in approach by HMRC, which wants to encourage and enable honest taxpayers to navigate the system, and reserve fines and penalties for those deliberately avoiding tax. It released a consultation paper earlier this year, suggesting a change to the penalty system to make it a 'progressive system similar to penalty points for motoring offences so that initial financial penalties are avoided, but more substantial penalties then apply for more serious failures or for persistent non-compliance'.

Not backing off

This lenience on honest taxpayers does not mean the taxman is getting soft on offenders. In its consultation, HMRC said one possibility was to introduce higher rates of interest on tax debts - instead of fines - which will make the size of the punishment match the seriousness of the unpaid tax bill.

For very serious offenders, the stakes are even higher. HMRC has revealed that as a result of its crackdown on tax evasion - and pushing for the harsher penalties - more people are going to jail now for tax evasion. The total number jailed has risen from 171 in 2011 to 220 last year - although the average time served has fallen.

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