Thousands of people who don’t earn enough to pay income tax are being fined by HMRC, reports suggest.
Income tax and National Insurance aren’t paid by individuals earning less than £12,750, although people who are self-employed still have to submit a self-assessment tax return each year even if they are below the thresholds.
Self-employed people who fail to submit on paper by October 31 or online by January 31 are automatically fined. Data seen by the Observer newspaper shows over 83,000 people earning less than the threshold were fined £100 by tax authorities in 2021-22.
Just 17,000 of the fines were cancelled on appeal, according to the figures released under the Freedom of Information Act to the Tax Policy Associates thinktank.
The figures also show half of the 61,000 fines of £300 dished out to people who submit their returns a year late were to those who don’t earn enough to pay tax. This compares to just 5,000 people who earn more than £100,000 per year being fined £300.
Tax Policy Associates has raised concerns about how many “vulnerable” people or those in financial difficulties are hit with fines for failing to submit a self-assessment tax return on time.
Dan Neidle, founder of TPA, told the Observer: “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.”
Recent figures on fines suggest their use is falling. In the past year, 92,000 people among the lowest paid 10% of the population were fined by HMRC for filing their tax return late.
A new system is being brought in which warns people before they are handed a fine. It also includes a points based approach whereby a penalty will only be issued when a threshold is met.
The new penalty regime for submitting tax returns late will be more lenient on those who make the occasional slip-up while penalising the minority who persistently do not comply by missing filing and payment deadlines, according to HMRC.
An HMRC spokesperson said the Government recognises taxpayers who occasionally miss the filing deadline should not face financial penalties and reform of the system is under way.
They added: “Our aim is to support all taxpayers, regardless of income, to get their tax right and avoid fines. The overwhelming majority of customers file on time.”
To challenge a fine, you first have to write to HMRC and then if no agreement can be reached, you should request an internal review.
Even if you appeal, you should still consider paying the fine because if you don’t and your appeal is rejected then you will have to pay interest on the penalty from the date it was due to the date you paid it.
If HMRC supports your appeal, it will pay back what you paid with interest from the date you paid it. You have 30 days from the date of the notice to appeal against it in writing.
Before appealing, make sure you have the date the penalty was issued; the date you filed your Self Assessment tax return; the date you paid your tax; details of your excuse for filing your return late or not making your payment on time.
If HMRC responds and extends an option to appeal, you can accept that or appeal to the tax tribunal.
