The increases in penalties for not filing your tax return by the due date are expected to be implemented from April 2011.
Currently, penalties are £100 charged in February if the return is not received by the due date, with a further £100 if it is still not submitted six months later. However, neither of these penalties can exceed the amount of tax outstanding at the end of January, which means that if there is no tax due then there will be no penalties.
This will all change this year. The initial penalty of £100 remains, but now it will not be limited to the amount of tax due. Therefore, even if you have overpaid your tax then you still need to submit your return on time to avoid the penalty. However, if you still fail to submit your return then things will bet even worse.
If the return remains outstanding after three months then daily penalties will apply. These are then followed by further automatic penalties after six months and twelve months calculated as 5% of the outstanding tax, with a minimum penalty of £300.
Therefore, a tax return will attract minimum penalties of £700 if it is over twelve months late, even if the taxpayer is due a refund on that return!