Waving cheerio to penalties

Nearly a million let off for late filing of tax returns

Where an individual fails to submit their Self Assessment Tax Return on time, ie by 31st October following the end of the relevant tax year for paper returns, and 31st January for electronic filing, then they are charged with a fixed penalty of £100. However it is possible to appeal against such a penalty and have it displaced provided the taxpayer has a ‘reasonable excuse’ for the late filing.

Generally, a ‘reasonable excuse’ is when some unforeseeable or unusual event beyond a persons control has prevented them from filing their tax return on time. For example:

• a failure in the HMRC computer system
• a person’s computer or software fails just before or during the preparation of their online return
• a serious illness, disability or serious mental health condition has made a person incapable of filing their tax return
• someone’s partner died shortly before the tax return or payment deadline
• someone who registered for HMRC Online Services but didn’t get their Activation Code in time

A reasonable excuse can only apply if the problem actually prevents a person from filing their return on time when they otherwise would have done so. Each case is unique and is considered on its own merits.

HMRC will not accept the following examples as a reasonable excuse:

• found the online system too complicated to follow
• relied on someone else to file the return and they let the taxpayer down
• forgot about the deadline
• did not try to re-submit their return on time once a problem with the IT system was put right
• registered for HMRC Online Services after the filing deadline

Where an individual does appeal against the £100 fine they normally face a 2 – 3 week examination of their tax affairs before HMRC reach a decision on whether or not to accept the appeal.  Following an internal memo leaked to the Daily Telegraph however, it has been revealed that Revenue staff were instructed to waive the penalty for those who had paid their tax bill  and appeared to have a reasonable excuse and therefore accept that excuse at face value.

HMRC justified their actions as the department has a backlog of nearly one million appeals from taxpayers and need to free up resources to tackle large scale tax avoidance. The decision will only apply to 2013/14 appeals and the rationale for this is set out in the memo:

• “We don’t want to charge penalties – we want customers to file their returns and to pay on time. Penalties will not be cancelled if the return or payment is still outstanding.
• Where we cancel the penalty, the customer will still be aware that they have missed a deadline, and will receive a warning for the future. Interest will still be charged on late payment.
• We will reduce the number of progress chasing calls allowing us to talk to other customers and deliver a better service for more customers as a result.
• We will be avoiding unnecessary collection costs and additional contact from the customer about demands for payment by cancelling the penalty at the first point of contact.
• The time we save will allow us to work higher priority post and allow DMB and E & C colleagues to focus on higher priority debt collection. Overall it will provide a better service from HMRC for all of our customers.”

The penalty regime is designed to influence taxpayer behaviour as well as being “clear and cost effective, fair and proportionate.” The memo conceded that “The current way of managing penalties does not meet these objectives, and so we have decided to take a  more proportionate approach”, which “means that in the majority of cases we will be accepting the customer’s grounds for appeal, and we can cancel the penalty.”

It is estimated that up to 890,000 people have benefited from this relaxed approach to penalty appeals.

A Revenue spokesperson did however confirm that, “no one will be let off the fine unless they’ve now sent in their return and have a good reason for sending it in late.

This is part of our planned approach to penalty appeals, particularly for small businesses and individuals who have sent their tax return in late.”