Cash Clinic: File on time or risk hefty penalties from taxman

QUESTION: I’VE just realised the deadline for paper self-assessment tax returns is 31 October and I have heard there are stricter rules this year? Can you tell me what has changed? KG Hawick

ANSWER: THE deadline for filing paper income tax returns for the 2010-11 tax year is 31 October, 2011, while the deadline for filing online income tax returns for this tax year is 31 January, 2012. If you have to file partnership or trust tax returns, you should note that HMRC does not provide free software to allow you to do this online. If it is a partnership tax return, there is an additional £100 tax penalty for each partner.

The initial late filing penalty remains a flat £100 charge but this can no longer be set aside if there is no outstanding tax liability for the year. The penalties continue to mount if the delay in filing your return continues, with the initial £100 for the first day late rising by £10 per day thereafter for the next three months up to a maximum of £900. If the delay reaches six months, another penalty is added to your bill: this is £300 or 5 per cent of the tax due, whichever is the higher.

If you are 12 months late, you are fined an additional £300 or 5 per cent of the tax, whichever is higher. So, even if you do not owe a penny in tax, you could end up with penalties of more than £1,600 if your tax return is more than a year late. In serious cases, you may be asked to pay a penalty of up to 100 per cent of the tax due. I hope that helps. NEIL WHYTE

• Neil Whyte is tax partner with accountants and business advisers PKF