Cash Q&A: Not returning your tax form can prove costly

I’m getting worried about what I should do because I hear there are much heavier fines now for missing deadlines, but I don’t want to contact HM Revenue & Customs about it in case it brings my case to their attention. What can I do?

PR, Peebles

ATHE longer you bury your head in the sand, the more it will cost you, so I recommend that you get in touch with HMRC or get professional help as soon as possible. You are correct in saying that the penalty regime has changed. The new penalty charging regime for 2010/11 tax returns means there are now combined penalties of at least £1,600 if you don’t file the return before February 2013, regardless of whether or not you have tax to pay: if HMRC asks for a return, it expects to get one.

Filing the returns now will mean that penalties are due unless you have a reasonable excuse. If you think you have a reasonable excuse for not filing your return, tell HMRC as soon as possible (download the reasonable excuse form at www.hmrc.gov.uk/carter/sa-reasonableexcuse.pdf). According to HMRC, what constitutes a reasonable excuse is limited to:

• A problem with HMRC’s computer system.

• A temporary breakdown of your own computer.

• HMRC not sending you the appropriate online codes in time (provided you applied in time).

• A serious illness (including disability or mental health condition).

If your excuse is considered reasonable, HMRC will not charge a penalty until the problem ceases. However, it will still expect you to file your tax  return within 14 days of the date the problem ceases: if you don’t, the penalty clock will start again.

It is worth remembering that the penalty system is automatic and notices are churned out based on computer records, so errors can arise fairly easily if your records are not up-to-date. In cases where you are sent a penalty notice and think it was sent in error, you can appeal (for self-assessment penalties you can download the appeal form SA370 from HMRC’s website – see www.hmrc.gov.uk/forms/sa370.pdf).

It should be noted that the courts have recently taken a slightly more sympathetic line on penalty issues and, if HMRC is clearly at fault in some way, you may be able to have a penalty set aside or reduced.

For example, one taxpayer thought that his tax return as an employer had correctly gone through the online system and he was not notified of a late  filing penalty until five months later when it had reached £400. Realising the problem, the taxpayer immediately filed the return and, on appeal, the penalty was reduced to £100 because, had a penalty notice been sent after just one month, the taxpayer could then have filed the return and the further delay would have been avoided.

On an outstanding tax return for 2009-10 or an earlier year, you would usually now be facing a tax penalty of up to 100 per cent of the tax due for that year (ie, you could end up paying the tax due twice over).

However, HMRC recently launched a partial amnesty. Provided you notify it that you want to take part and then file the outstanding returns and pay any tax due by 2 October 2012, penalties will normally be limited to £200 plus any interest and surcharges due on the tax paid late. Grab this opportunity to get up-to-date cheaply while you can.

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

If you have a question you need answered, write to Jeff Salway, The Scotsman, 108 Holyrood Road, Edinburgh, EH8 8AS or e-mail: [email protected].

This above is for general purposes only and is not tailored for individual use. It does not constitute legal, financial or investment advice on any particular matter and must not be treated as a substitute for specific advice. No action should be taken in reliance of the information given. The Scotsman Publications Ltd accepts no liability on the basis of this article.