In the 2020-21 financial year, HMRC fined 184,000 low-income earners for not submitting a self-assessment, despite their earnings being under the threshold for paying income tax.
Most residents in the UK do not need to file a tax return as most earners only have a single income from employment, and income tax is automatically deducted at source by their employer. There are around 11 million people with other sources of income which require a self-assessment form to be completed.
Additionally, an annual personal tax allowance applies, and this was set at £12,500 for the 2020-21 financial year. Any earnings under this amount are not subject to income tax.
The fines have had a disproportionate impact on low-earners, who are not subject to income tax in the first place but have since been hit with fines for failing to submit a tax return. Many of these initial fines were widely believed to be mistakes, leading to further fines and interest payments that total thousands of pounds. In many of these cases, the fines inevitably exceed the amount of tax owed.
Data released under freedom of information requests sent to HMRC show that during the 2020-21 tax year, 92,000 people from the lowest-paid 10% were fined, compared to just 39,000 of the highest-paid 10%.
Out of the 184,000 initially fined, 126,000 fines were upheld on appeal.
The government has indicated that they are looking at reforming the penalty system. HMRC has stated that they aim to ‘support all taxpayers, regardless of income’, and that waivers will be introduced for occasional missed deadlines. Further guidance is to be offered to ensure that taxpayers are aware of their obligations.