HMRC fines 400,000 taxpayers who don't owe any tax
Almost 400,000 taxpayers have been charged a penalty for not filing their tax return on time – even though almost none of them owed any tax.
Taxpayers who need to file a self-assessment tax return will automatically be hit by a £100 fine if they fail to meet the 31 January deadline, regardless of whether or not tax is owed. Penalties can run into the thousands of pounds if they file over 6 months late.
A Freedom of Information request obtained by Tax Policy Associates, a think tank, has revealed that those on a very low income are the most likely to be penalised for late filing.
Between 2018 and 2020 those earning less than £13,000 a year made up a far higher proportion of those being hit by penalties compared to higher earners, the data shows.
This is despite many of these taxpayers having no tax to pay. The same FOI showed that while those earning under £13,000 paid fines for submitting their returns late, there were no penalties for late payment of tax.
This is because all taxpayers can earn up to £12,570 a year before having to pay income tax. The personal allowance was £12,500 in 2019-20 and £11,850 in 2018-19.
Penalties work differently for self-assessment filers who do not pay their tax on time. If a taxpayer fails to pay their tax return bill within 30 days of the deadline, they will be charged 5pc of the tax liability.
Tax Policy Associates said it believed HMRC was acting in “good faith” and had been “unaware of the disproportionate impact that penalties have on the low paid.”
For many of these low-income taxpayers, a £100 penalty would make up half of their weekly salary.
HMRC is changing the way it fines self-assessment filers from 6 April 2025 so that one-off failures to file on time will not incur a penalty. Instead a points-based penalty system will apply.
Although these new rules are more lenient, the penalty itself will double to £200. Tax Policy Associates said in its report that it was difficult to say how this change would affect the proportion of low-income workers getting fined for late filing.
The think tank made a number of recommendations for fixing the problem, including that HMRC should automatically cancel fixed-rate late submission penalties where it later determined that a taxpayer had no taxable income.
A spokesman for HMRC said: “Automatic incentives for tax returns are necessary for the efficient functioning of HMRC as it means public services can be funded on time. We are reforming penalties so taxpayers who occasionally miss the filing deadline will not face financial penalties.
“We support all taxpayers, regardless of income, to get their tax right, and through HMRC’s extensive advertising and supportive approach 95pc of customers now pay their tax on time.
“We encourage anyone who does not need to file a return to tell HMRC, the steps of how to do so are included in reminders sent direct to customers every year.”