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HM Revenue & Customs (HMRC) are implementing the new late filing and late payment penalties and interest provisions from Finance Act 2009 over a number of years as and when resources allow to prepare for the changes and will also avoid the prospect of large scale change in any one year. It allows the capital investment costs to be spread out and minimises risk. 

Currently, only the new late payment penalties for PAYE (Pay As You Earn), (including tax, National Insurance contributions, Construction Industry Scheme (CIS) deductions and Student Loan deductions) are in force. These apply to tax periods starting on or after 6 April 2010. 

HMRC will inform you of the planned implementation dates for other taxes and duties when these dates become clear.

PAYE - late payment penalties and interest changes

Late payment penalties

You can find more information about the late payment penalties for PAYE, Construction Industry Scheme (CIS) and student loans, by visiting the PAYE/National Insurance late payment penalties webpage.

Interest

In Budget Note 91 (2009) we said we expected to implement the new interest provisions for in-year PAYE payments from April 2010. This is no longer our intention. Meanwhile the current interest provisions remain unchanged, and we will continue to charge interest on payments received after the due date following the end of the tax year.

Self Assessment - late returns and late payment penalties

HMRC expects that new Self Assessment penalties for sending in late tax returns will be introduced from October 2011. They will apply to late 2010-11 tax returns.

HMRC expects the new penalties for late payment to apply to late balancing payments from 2012.

Late tax returns

HMRC will still charge a penalty of £100 if your return is late – and you may still appeal against the penalty if you have a reasonable excuse.

At the moment the amount of this penalty is 'capped' for some customers, this means that the penalty can't be more than the amount of tax unpaid at 31 January. This 'capping' applies to tax returns for individuals, trust and registered pension schemes tax returns. It doesn't apply to late Partnership tax returns.

When the new penalties are introduced, no penalties will be 'capped' so the full penalty of £100 will always be due if your tax return is late. It's expected that the change will apply to the 2010-11 tax return. This is due on the 31 October 2011 if sent on paper and 31 January 2012 if filed online.

If you still don't send your 2010-11 tax return back, you'll also be charged the following penalties:

• Over three months late - a daily penalty
• Over six months late - an additional £300 or five per cent of the tax due if this is higher
• Over twelve months late - a further £300 or a further five per cent of the tax due if this is higher

Late payments

The first two late payment penalties will be similar to existing penalties, so from January 2012 HMRC may charge the following penalties if you pay your tax late:

• a 5 per cent penalty, if you haven't paid the tax due on 31 January 30 days later
• a second 5 per cent penalty, if you haven’t paid the tax due on 31 January six months later

In addition there will be a third 5 per cent penalty, if you haven’t paid the tax due on 31 January twelve months later. This will apply from January 2012.

These will all be called 'late payment penalties'.

The above penalties are in addition to charging interest from the date the tax was due until the date your payment is received.

Changes from January 2012

It's expected that there will be changes to how late payment penalties work for the 2010-11 tax return. This will affect payments due on or after 31 January 2012 that are paid late.

Read more about changes to Self Assessment penalties for the 2010-11 return

Construction Industry Scheme (CIS) - late return penalties

It's expected that new CIS late return penalties will be introduced from October 2011. They will affect returns due for the month 5 November 2011 onwards.