HMRC to stop self-assessment tax return penalties?

10 February 2015

HMRC has released a 26-page document proposing changes to self-assessment tax return penalties. Currently, people who miss the tax return deadline by one day have to pay a fine of £100, something which HMRC is now considering as too harsh. The government department believes honest taxpayers are being punished by the system just because they’ve filed their return a day or two too late.

 

The £100 fine (which has been in pace for 20 years) is the same for those who pay up to three months late which shows there needs to be some sort of new system which targets the tax avoiders, not necessarily the late filers. HMRC is proposing a system that fines those who repeatedly fail to declare their tax returns on time.  

Many people could escape these £100 penalties which would be a great relief to some taxpayers. Only a few weeks ago it was revealed nearly 900,000 people had missed the deadline - a tidy sum for HMRC!

In the document, HMRC states, “We want to consider whether we could better differentiate between deliberate and persistent non-compliers and those who might make an occasional error.”

“One option could be 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.”

The taxman is also looking into extending its list of reasonable excuses for missing the deadline, for example ‘finding it difficult to complete a complex form’ or ‘filling in the tax return first time’.

It’s time to change the way HMRC dishes out penalties as many get punished even when they don’t owe any tax. The only downside to changing the penalty could be a general lack of motivation to get returns in on time.