Pramod ThomasBy: Pramod Thomas
A study conducted by tax campaigners has revealed that four in ten of all fines (40 per cent) issued by HM Revenue & Customs for late tax return submissions targeted people who earn too little to owe any tax, reported The Times.
The report added that around 420,000 penalties for late tax filing were imposed by the tax authority from 2018 to 2022 on individuals whose earnings fell below the personal tax allowance, meaning they had no tax liabilities. Many of those hit with penalties were paid less than the personal allowance, £12,570.
Those who received fines are typically individuals with fluctuating incomes or are self-employed and have previously been involved in disputes with the HMRC, the report further said.
The number of fines issued to the lowest-income group, specifically those earning less than £6,000 per year within the self-assessment system, decreased from 92,000 in the 2020-21 period to 60,000 on appeal.
These details obtained through freedom of information requests from HMRC challenge the belief that late payment penalties, starting at £100, are primarily imposed on wealthier individuals, the report revealed.
“People are falling into debt — and in one case we’re aware of, actually becoming homeless, as a result of HMRC penalties. Even just the lowest penalty of £100 is a large proportion of the weekly income of someone on a low income, indeed over 100 per cent of the weekly income for someone in the lowest income decile,” Dan Neidle, a former Clifford Chance tax partner, was quoted as saying by The Times.
Neidle, through his think tank Tax Policy Associates, started a crusade to expose fraud, improve understanding of tax and correct injustice. He was behind the questions raised about the tax affairs of the former Tory chairman Nadhim Zahawi.
Neidle also called for a change in the law and in HMRC’s processes. In his opinion, it is unfair to impose a penalty on individuals who file their taxes late that surpasses the amount of tax they owe.
Out of the 32 million taxpayers in the UK, approximately 11 million needed to submit a tax return. The deadline for filing the tax return is January 31st for the previous tax year, which ends on April 5th. If the tax return is filed one day late, a fine of £100 is imposed.
After three months, the fine can increase by £10 per day for a maximum of 90 days, reaching a maximum of £900.
After six months, an additional penalty of £300 can be applied, followed by another £300 after 12 months. Consequently, the total amount of fines can accumulate to £1,600.
However, starting from April 2025, the government intends to modify the regulations. Under the new rules, there will be no penalty for the first offense, but a fine of £200 will be imposed for subsequent offenses.
HMRC stated that the government understands the need for reform in the tax filing penalty system, recognising that taxpayers who occasionally miss the deadline should not be subjected to financial penalties.
