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More than 180,000 people on low incomes were fined for not filing a tax return last year, even though they received so little that they had no tax to pay in the first place.
HM Revenue and Customs handed out fines to 184,000 people paid less than £12,500 a year – the level under which people were then not subject to income tax – in the 2020-21 financial year (the latest for which full figures are available) for failing to complete a self-assessment tax form on time.
Many of these people, already in severe financial difficulties, misunderstood the initial fine and were then subjected to further fines and interest. Some people were left facing fines of thousands of pounds, which would take them many years to pay.
One of the people, Diana Cabral, 61, from Chichester, said she was fined £100 for not filing the self-assessment form, which she had disregarded because she was employed full-time and paid tax automatically from her salary.
“I thought this was a mistake so I disregard the notice. I ended up paying more than £2,000,” she said. “I’ve appealed several times without success. I was poor before, I’m even more poor now. I don’t have any savings to pay the fine. I had to make an agreement to pay £20 a month. It is going to take years.”
Most of the 32 million taxpayers in the UK are not required to submit a tax return, because most people’s only income (beyond modest savings) is from their employer (and the tax is taken at source). However, about 11 million people are required to submit a “self assessment” income tax return if they have other sources of income or have done in the past.
Data released by HMRC after freedom of information requests by thinktank Tax Policy Associates (TPA) shows that 92,000 people among the lowest-paid 10% of the population were fined by HMRC for late filing of their tax return in 2020-21. By comparison, just 39,000 of the highest-paid 10% received fines in the same year.
A total of more than 660,000 fines have been handed out to people on low incomes between 2018-19 and 2021-22, according to TPA’s analysis of the data. HMRC said the 660,000 fines do not necessarily mean 660,000 people were fined, as some people were likely to have been fined in more than one tax year. About 180,000 people successfully appealed against the fines.
If HMRC has required a taxpayer to submit a tax return, and they miss the deadline (31 January), a £100 automatic late-filing penalty is applied. Three months past the deadline, the penalty can start increasing by £10 each day. After six months, a flat £300 additional penalty can be applied, and after 12 months another £300. By that point, total penalties can be £1,600.
Until 2011, a late-filing penalty would be cancelled if, once a tax return was filed, there was no tax to pay.
Dan Neidle, a tax campaigner and founder of TPA, said: “We believe the law and HMRC practice should change. Nobody filing late should be required to pay a penalty that exceeds the tax they owe.”
“People are falling into debt and, in one case we’re aware of, becoming homeless as a result of HMRC penalties. Advisers working with low-income taxpayers see this kind of situation all the time, and filing appeals for late-payment penalties often makes up a significant amount of their work.”
An HMRC spokesperson said: “The government has recognised that taxpayers who occasionally miss the filing deadline should not face financial penalties, and has already announced reform of the system.
“Deadlines for returns are necessary for the efficient functioning of the tax system, though, and we strongly encourage anyone who does not need to file a return to tell HMRC.
“Our aim is to support all taxpayers, regardless of income, to get their tax right, and details of what to do if a person no longer needs to file a return are included in reminder letters every year.”
Bradley Post, MD of RIFT, commented: “It’s disappointing to see that HMRC have devoted such time and energy in penalising those at the very bottom of the ladder when it comes to their failure to submit a tax return, despite owing nothing in tax to begin with and especially given the tough economic landscape we find ourselves in.
At the same time, those seeking advice and guidance from HMRC are subject to long delays and inadequate communication channels, an issue that has been made all the worse by their decision to close their self-abasement tax helping.
So it’s fair to say that the resources used to pursue the hardworking individuals who don’t owe any tax to begin with could be far better used in addressing their own operational inefficiencies.”