HMRC sending fines to thousands of people 'who earn too little to pay tax'

Thousands are being fined by HMRC even though they don’t owe any UK tax. 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, it has emerged.

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. And the figures show only 20,000 people earning £100,000 or more were penalised.

Half of all the 61,000 fines were to people who earn too little to pay tax and only 12,000 were successful on appeal. Only 5,000 people earning more than £100,000 a year were fined, the data released this week by the Observer newspaper revealed.

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The figures come from the Tax Policy Associates (TPA) thinktank. “The current penalty regime will continue alongside the new regime for a few years,” said Joanne Walker, a technical officer for the Low Incomes Tax Reform Group. “This has the potential to be unfair on those who remain in the current, arguably harsher, regime, especially those on low incomes as it is recognised that the new regime will be fairer.

“We suggest that, until the new system can be introduced for everyone, HMRC should take steps to make late filing penalties fairer and more consistent for all taxpayers.” An HMRC spokesperson said: “The government recognises that taxpayers who occasionally miss the filing deadline should not face financial penalties and reform of the system is under way. Our aim is to support all taxpayers, regardless of income, to get their tax right and avoid fines."

“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.”