Campaigners are urging for reform after new data indicates that over 83,000 low-income earners are facing penalties from HMRC for failing to file their tax returns on time. The findings, recently revealed by the Observer, show that people who make less than the tax threshold are receiving fines, often amounting to hundreds of pounds.
In the tax year 2021-22, the tax authorities issued £100 penalties to more than 83,000 individuals earning below this threshold. Of those, only 17,000 fines were successfully appealed. In stark contrast, merely 20,000 individuals earning £100,000 or more faced penalties.
This trend continues with the £300 fines imposed for late filings. Data reveals that half of the 61,000 late fines were issued to individuals earning too little to be liable for tax. Only 12,000 of these fines were overturned on appeal, compared to a meager 5,000 penalties against higher earners.
The findings come from a report by Tax Policy Associates (TPA) released under the Freedom of Information Act. The report raises alarms about how vulnerable individuals, often already facing financial strain, are being penalized for missed self-assessment tax submissions. To put it into perspective, individuals earning under £12,570 currently do not owe income tax.
Dan Neidle, founder of TPA, expressed concern, stating, “It’s shameful that tens of thousands of people on very low incomes, often with difficult lives, have their situations made worse by HMRC penalties. We should revert to the pre-2010 system that spared those unable to pay tax from fines.”
One self-employed photographer, who requested anonymity, shared his experience of receiving numerous fines despite HMRC acknowledging his low income. He revealed that he has not earned enough to pay income tax since 2017, living off savings, occasional odd jobs, and non-taxable legal settlement money.
Confusion played a significant role in his ordeal. “I received reminders for tax submissions, and as I ignored them, the fines just kept piling up,” he recounted. “Eventually, they acknowledged I hadn’t earned enough to owe anything. I thought that settled the matter, but a few months later, I was hit with a £3,000 bill—not for tax, but for fines.”
He described how the mounting fines, coupled with the challenges of reviving his business during the pandemic, left him feeling overwhelmed. “Mentally, I’ve struggled. It feels as though the system operates on the premise that you’re guilty until proven innocent.”
Despite these alarming figures, there is a glimmer of hope as the latest statistics suggest a decrease in fines. Last year, 92,000 of the lowest-paid individuals faced penalties for late tax filings. In response, HMRC is implementing a new system that provides warnings before issuing fines. However, tax advocates argue that delays in this system have led to added confusion and inequity.
Joanne Walker, a technical officer for the Low Incomes Tax Reform Group, pointed out, “The current penalty system will coexist with the new one for a few years, which could unfairly impact those remaining under the existing, arguably harsher regime. We recommend implementing measures to ensure late filing penalties are more equitable across the board until the new system is fully operational.”
In a response, an HMRC spokesperson acknowledged the concerns, stating, “The government understands that taxpayers who occasionally miss deadlines should not face financial repercussions, and reforms are in progress. Our goal is to assist all taxpayers, regardless of income, in meeting their tax obligations and avoiding fines. The majority of individuals do file their taxes on time.”
