Thousands are fined by HMRC even though they don’t owe any UK tax
Campaigners call for reform after more than 83,000 low earners are hit by HMRC penalties
Tens of thousands of people who earn too little to pay tax are still receiving hundreds of pounds in fines for failing to file a tax return on time, according to new data seen by the Observer.
More than 83,000 people earning less than the threshold were issued with a £100 penalty by the tax authorities in 2021-22. Only 17,000 of those fines were later cancelled on appeal. By contrast, only 20,000 people earning £100,000 or more were penalised.
Those with low incomes fare even worse when it comes to the £300 fines handed out for filing a year late. Half of all the 61,000 fines were to people who earn too little to pay tax. Some 12,000 were successful on appeal. Only 5,000 people earning more than £100,000 a year were fined.
The figures have been uncovered under the Freedom of Information Act by the Tax Policy Associates (TPA) thinktank. It has raised concerns about the extent to which people who are vulnerable or facing financial hardship are being issued with the penalties for failing to submit a self-assessment tax form on time, which self-employed workers must do. Currently, anyone who earns less than £12,570 does not pay income tax.
There are now calls to go back to an old system in which anyone who did not pay any tax was effectively spared a fine. “It’s shameful that tens of thousands of people on very low incomes, often with difficult lives, have their lives made more difficult by HMRC penalties,” said Dan Neidle, the founder of TPA. “We should go back to how things were before 2010: nobody should have to pay a penalty if their income is too low for them to have a tax bill.”
One of the thousands to have faced the issue, a self-employed photographer who wished to remain anonymous told the Observer that he had been issued with many fines, despite the tax authorities acknowledging he did not earn enough to pay tax. He said he had not earned enough to pay income tax since 2017 and had subsequently lived off savings, small amounts from odd jobs and money from a legal settlement that is non-taxable.
He said confusion had played a major part in his case. “I was sent reminders for tax, I ignored them and they sent more and the fines kept increasing,” he said. “And then they sent me a letter saying, ‘we can now see you haven’t been making enough to tax so actually you’re not due anything’.”
He said he believed this was the end of the issue, yet a few months later he received an even larger demand. “Two or three months later they sent me a bill for £3,000, not for tax due but for fines,” he said. He said that the fines, combined with the struggling to restart his business during the pandemic, had left him in a “dark place”.
