HM Revenue & Customs have introduced their new penalty structure for tax payers who, for whatever reason, fail to file their Self Assessment forms in line with the rules. The new late filing penalties are upsetting a lot of people who had become used to the old system where the fine was reduced to £nil once the outstanding forms were eventually filed if it were shown there was no tax liability, or that all the tax had been paid by the 31st January. The system now is £100 fine immediately if the form is late. If the form is still outstanding on the 1st May 2012 then the £10 per day penalties will start for each of the next 90 days. The whole process starts again on the 31st July 2012 and the huge £1,000 penalty up to that point will really start to snowball.
I know HMRC were getting fed up with tax payers treating the filing deadline with indifference. I have a certain number of clients (very few now but a few die-hards) who insisted on flouting the rules as they knew the penalty would be mitigated anyway later on. In a way I am in favour of the new hard line fines. Some people need to see that the rules apply to all tax payers, not just the vast majority who file their forms and pay their tax as expected, but everyone – including themselves.
I have had several people complaining about the new fine once they read the notice about daily penalties. In most cases I have had no sympathy as I had already been chasing them for months trying to get the information out of them to file their forms inside the deadline, without success.
However, HMRC are not perfect and have issued fines incorrectly in a number of cases where they simply shouldn’t have. Duplicate tax references is one example – even when HMRC have been told each year for several years about the duplication – they still issue the fine on the duplicate record even though the form has been correctly submitted. Another example is when a partnership ceased before 5th April 2010 and for which a form for 2011 could not legally be filed – they still issued a penalty notice. OK – they rescind these penalties quickly enough once the error is pointed out but for maximum credibility for their new penalty regime – they should have taken a lot more care to clean up their database first. When they get it wrong it sends out lots of bad PR to taxpayers who are abiding by the rules.
I have thought for a number of years that the penalty system needed tightening up, if only to give me a bit more help in trying to get information out of a few hard nuts who feel deadlines are for wimps. I think a definite deadline of 10 months after the end of the tax year is plenty of time to get the forms filed with co-operation from tax-payers. I am hopeful that the new penalties will be enough to change the habits of the last few awkward souls as there really isn’t any reason that the 31st January each year isn’t a reasonably attainable deadline. But…. time will tell.
What am I doing to help ensure clients do not miss the deadline and get hit by these penalties?
I have been introducing an aggressive new system in-house over the last three months for all deadlines such as Accounts, VAT, Corporation Tax, Company Secretarial, Payroll etc.. which will turn its attention to Self-Assessment very shortly. Those who have experienced it have commented on how refreshing it is to be pro-actively reminded and chased for things that had previously been left (forgotten) until the last minute. The Self-Assessment part involves lots of poking and prompting at an early stage in the tax year (remember Self Assessment forms can be filed from mid-April onwards each year). I intend to keep Self-Assessment responsibilities high in the minds of clients when most of the information I need is dropping through letterboxes in April and May. I will remind, chase and generally nag away by post, email and even text messages until everything is done and filed.
I am considering introducing our own practice deadline for Self Assessment forms at the end of August or maybe September – with the penalty being a supplement added to the annual fee – because historically I have seen two peaks of activity. The first is a healthy peak in April as clients with year ends between January and 5th April rush to bring their information in as soon as possible. However, the other peak is Christmas time when the adverts start appearing on TV reminding people about filing their forms before 31st January. I have said before I am trying to educate a few clients who insist on leaving their paperwork until the last possible minute into bringing their books in much earlier – and I am writing to those now. I am hoping that experience of the new penalty regime will help pull these few people into line with my badgering as well – once they realize that I do it only for their own good.