Review of HMRC's Powers, Deterrents and Safeguards

Changes to penalties for late returns, late payment of tax and interest

The Review consulted on and legislated in Finance Act 2009 and Finance (No 3) Act 2010 for a new penalty regime for late filing of returns and late payment of tax and an aligned approach to charging and paying interest across HM Revenue & Customs (HMRC) taxes and duties.

Implementation timetable

HMRC will be implementing the new late filing and late payment penalties and interest provisions over a number of years. The following table shows the tax and duties where the new penalty regime applies and where it will be applied in the near future.

Tax/Scheme and type of change	Statutory Instruments	Effective date
PAYE 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) HMRC said they expected to implement the new interest provisions for in-year PAYE payments from April 2010. This is no longer the intention. Meanwhile the current interest provisions remain unchanged, and HMRC will continue to charge interest on payments received after the due date following the end of the tax year.	SI 2010/466: IT & CIS SI 2010/661: Student loans SI 2010/721: NIC	6 April 2010
Bank Payroll Tax - interest charged and paid under new interest framework - new late payment and filing penalties Technical Guidance can be found in the Compliance Handbook	SI 2010/1878 Not applicable	31 August 2010 31 August 2010
Pension Scheme Returns - changes to late payment penalties - changes to late filing penalties You can find more information by visiting the Tax returns for trustees of registered pension schemes webpage.	SI 2010/466 SI 2011/702 & SI 2011/703	6 April 2010 1 & 6 April 2011
Income Tax Self Assessment - changes to late payment and late filing penalties - interest charged and paid under new interest framework You can find more information about the penalties introduced on 6 April 2011 for the tax year 2010-11 onwards by visiting the Tax returns deadlines and penalties webpage.	SI 2011/702 & SI 2011/703 SI 2011/784: Student loans SI 2011/701	1 & 6 April 2011 1 April 2011 (appoints 31 October as the day on which the new harmonised interest regime comes into force for ITSA)
Construction Industry Scheme - new late return penalties - late payment interest will be charged on late return penalties not paid by the due and payable date The new CIS late return penalties were introduced from October 2011. They will affect returns due for the month ended 5 November 2011 onwards. You can find more information by visiting the Changes to penalties for late CIS contractor returns webpage	SI 2011/2391	6 October 2011

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

Legislation

Penalties for failure to make returns
Finance Act 2009 - section 106 and Schedule 55
Finance Act (No 3) 2010 - section 26 and Schedule 10

Penalties for failure to pay tax
Finance Act 2009 - section 107 and Schedule 56
Finance (No 3) Act 2010 - section 27 and Schedule 11

Interest
Finance Act 2009 - sections 101 to 105 and Schedules 53 and 54
Finance (No 3) Act 2010 - section 25 and Schedule 9
Statutory Instrument - SI 2009/2032 (aligned rates from 12 August 2009 for those taxes where HMRC currently charged and paid interest)

Consultation

Initial consultations on Meeting the obligations to file returns and pay tax on time and on Interest - working towards a harmonised regime were published on 19 June 2008. Responses to the initial consultations together with more detailed proposals and draft legislation were published on 24 November 2008 in the documents Meeting the Obligations to File Returns and Pay Tax on Time: Consultation Responses and Refined Models and Interest - Working towards a harmonised regime: Summary of Responses and Proposals. A summary of responses and a Final Impact Assessment (Opens new window) were published on 22 April 2009.

The measures were announced on 22 April 2009 in Budget Notes 90 (Opens new window) and 91 (Opens new window).

A further consultation to complete the reform of the penalty regimes for late filing of tax returns and late payment of tax Meeting the obligations to file returns and pay tax on time: Draft legislation and commentary and a consultation to bring Corporation Tax and Petroleum Revenue Tax within the harmonised interest regime Interest working towards a harmonised regime were published on 9 December 2009. A summary of responses was published on 24 March 2010.

The intention to legislate was announced on 22 June 2010 in Budget Note 37 and Budget Note 36 . (These measures were previously announced at Budget March 2010 in BN67 and BN66.) These notes supersede those versions.

Research

Late payment of tax: motivations and sanctions

Ipsos MORI was commissioned by HMRC to undertake qualitative research with customers that had been in tax debt during the past two years. The aim of the project was to develop a better understanding of late paying customers and the effect of different enforcement and support regimes.

The report Late Payment of Tax: Motivations and Sanctions was published on 18 December 2008 with an explanation of how HMRC has already started to take on board the outcome of this research and has used the findings to inform the review's work into debt, penalties and interest.