HM Revenue and Customs (HMRC) has warned taxpayers that the penalty for filing late tax returns is to rise significantly.

The old fine of £100 is to be replaced because, the tax authority says, the previous penalty rate was not enough of a deterrent.

The new penalty regime for late filing and late payment of self assessment income tax comes into effect on 6th April 2011 and applies to the tax year 2010/11.

Taxpayers who fill in self assessment tax returns will shortly receive their 2010/11 notices and paper returns. These will include information on the new penalty framework and how it will significantly increase penalties for those who file and pay late. A tax return filed six months late could attract a penalty of at least £1,300.

HMRC’s Stephen Banyard said: "The vast majority of people don’t have to pay penalties because they send in their return and pay on time; but there are always a small number of people who have avoided filing or paying on time. HMRC spends a lot of time pursuing late returns and getting involved in unnecessary appeals work.

"We want to focus our resources on more productive work such as catching criminals and collecting tax. The old £100 penalty was not much of a deterrent and these new penalties, which increase over time, will get people to submit returns as soon as possible. Basically the greater the delay, the greater the penalty."

Currently, self assessment tax returns must be filed on paper by 31 October or online by 31 January, with any payments due made by the end of January.

The new penalties for filing self assessment tax returns late are:

One day late will mean an initial penalty of £100, even if there is no tax to pay or all the tax owed has been paid.

Three months late will mean an automatic daily penalty of £10 per day, up to a maximum of £900.
Six months late will mean further penalties, which are the greater of 5 per cent of tax due or £300.
Twelve months late will mean yet more penalties, which are the greatest of 5 per cent of tax due or £300. In serious cases, there could be a higher penalty of up to 100 per cent of the tax due.

Penalties for late payment of tax are:

Thirty days late will involve an initial penalty of 5 per cent of the tax unpaid at that date.
Six months late will involve a further penalty of 5 per cent of the tax that is still unpaid.
Twelve months late will involve a further penalty of 5 per cent of the tax that is still unpaid.
These penalties are on top of the interest that HMRC will charge on all outstanding amounts, including unpaid penalties, until the payment is received.