The measure

A consultation document has been issued containing draft legislation to include penalties for late filing of returns and payment of tax for indirect taxes and excise duties in the harmonised regime that was introduced by Finance Act 2009. The exact penalties to be applied depend on the length of the period for which the return is made and the extent to which any payment or return is late. Some of the key points to note include:

• Penalties for late filing of returns are a combination of fixed and tax-geared penalties, with the tax-geared penalty strictly up to a maximum of 100% of the tax due.
• Penalties for late payment of taxes are determined by the number of defaults within a penalty period. A penalty period begins on the occasion of a default and runs for 12 months. Any further defaults within the penalty period extend the penalty period to 12 months from the date of that further default. The first late payment will not trigger a charge but subsequent defaults will trigger a penalty of at least 2% rising to 4% of the tax unpaid. Additional penalties will be levied if the tax is still unpaid at 6 months (5% of the tax) and 12 months (a further 5%).

The penalties above can be suspended in circumstances where the taxpayer enters into an agreed 'time to pay arrangement' with HMRC. In addition, the taxpayer can appeal against all penalties based on the grounds of reasonable excuse.

Who will be affected?

All indirect tax and excise duty payers.

When?

It is proposed that the draft legislation will be included in the 2010 Finance Bill. Due to the need to update HMRC's computer systems, the changes will be implemented in phases over several years and will be brought into effect by Treasury Orders.