Talking to your clients - Late returns – income tax self assessment

Whilst you will be well aware of the tax return penalties for late returns it is easy to forget, and find the time, to focus on explaining these to clients. Taking extracts from our Finance Act 2011 course notes, we have prepared a series of tax tips to assist you when 'Talking to your clients' to provide proactive, responsible and timely advice therefore saving you time.

Here we focus on those clients, who despite your best efforts, have still not submitted their 2010/11 self -assessment return. Do they need reminding about the new penalties they will potentially now face if they continue to delay submitting their returns. This may also protect your position at the same time!

The rules for income tax self assessment i.e. personal, partnership and trust returns commence from 6 April 2011 in relation to 2010/11 returns and 1 April 2011 for pension scheme returns in respect of a return period ending on or after 31 March 2011.

Under the new regime, the filing and payment requirements of self assessment are effectively separated. The penalty for late filing for personal and trust returns will no longer be capped at the lower of £100 and tax outstanding at 31 January. The surcharge rules have been repealed.

Apart from CIS, the basic scheme of penalties will be as follows:

the basic failure to submit the return will trigger a penalty of £100 (whether or not the tax has been paid);

• after three months HMRC can impose a daily penalty of up to £10 per day for a maximum of 90 days beginning with the day they specify as the commencement date. This date may be earlier than the date on which the notice is given but cannot be earlier than three months after the filing date;
• after six months the penalty will be the greater of £300 or 5% of the tax shown on the return;
• after 12 months the penalty will again be the greater of £300 or 5% of the liability but, if as a result of the failure to make the return, the taxpayer withholds information which would enable HMRC to assess the liability to tax the penalty can rise to 100% of the tax if the withholding is deliberate and concealed and 70% where it is just deliberate. The 100% or 70% penalty can be reduced by disclosure in the same way as is provided in the new penalty regime for errors in documents.

Key point

Make sure that clients are aware just how significant the penalties could be. 'Help us to help you' is the message to get over to clients.