A penalty of GBP50 is charged when the return for a tax year ending on 5 April has not been submitted by 6 October. An additional GBP50 penalty is charged if the return remains outstanding at 5 April in the following year.

It is a criminal offence if an individual’s tax return has not been sent to the Division within 24 months of the end of a tax year, and prosecution action may be taken in such cases. The penalty on conviction can be a fine of up to GBP5,000, custody for a term not exceeding six months, or both.

The penalty system has led to an improvement in the number of returns submitted, but the level of non-submission remains unacceptable, the Division said, and a number of changes will be introduced in the coming year to improve compliance with tax return obligations.

When a taxpayer fails to deliver a tax return on time, the Assessor will issue what is commonly referred to as a ‘default assessment’. These assessments are made to the best of the Assessor’s judgement and include estimated income and deductions where applicable.

However, in order to give taxpayers and their advisers greater clarity, the Division intends to change the law so that all default assessments will be revised if the relevant tax return form is submitted by an individual within six years of the end of the tax year and by a company within four years of the end of its accounting period.

This new approach will apply to returns received after 6 April 2008, and will operate by concession pending amendment of the statute.

It is the current practice of the Division to make a refund of any balance of tax held on account by Treasury (for example, deductions remitted to the Division under the subcontractors in the construction industry scheme) which exceeds the tax liability shown in a default assessment, or to credit the balance against other liabilities due; even when the tax return for the year in question is outstanding.

From 6 April 2008, if a default assessment results in a notional overpayment a refund will not be made.

Similarly, and from the same date, the Division will not set any notional overpayment against other liabilities that the taxpayer may have, other than those in the same tax year such as Class 4 National Insurance Contributions or late return penalties.

In order to deal with the significant number of tax returns that have not yet been submitted, the Assessor intends to use the prosecution route more frequently.

Individuals and companies are required by law to submit tax returns, and the Assessor will consider prosecution when returns have not been delivered to the Division. An officer of a company can also be prosecuted for failing to submit the company return.