Hundreds of thousands paying wrong tax fines

Almost 400,000 self-employed Britons on low incomes are being penalised for filing their tax returns late when most of them don’t owe any tax. 

Tax Policy Associates – a non-profit – called for penalties to be cancelled if HMRC finds people have no taxable income. 

HMRC said new rules would mean people who sometimes miss a filing deadline would not be penalised. 

Tax Policy Associates revealed Tory chairman Nadhim Zahawi paid a penalty over previous unpaid taxes while he was chancellor. 

The boss of HMRC told MPs on Thursday that there were no penalties for “innocent” tax errors. 

The non-profit found that nearly 400,000 people earning less than £13,000 received a penalty for not filing a tax return on time between 2018 and 2020.

The majority of those had no tax to pay anyway because they earned less than the tax-free personal alliance – which was £12,500 in 2019/20 or £11,850 in 2018/19.

The lower people’s income, the more likely they are to be penalised, the firm said. 

Fines of £100 are automatically issued to people if they fail to file an online return by 31 January each year.

Tax Policy Associates founder Dan Neidle said: “It’s astonishing and unjust that hundreds of thousands of people are being charged penalties for late filing of their tax returns, when in fact their income is so low they have no tax to pay.”

For most of those affected, the £100 penalty represents more than half their weekly income.

Penalties can build up if they a not paid, and after a year, can be more than £1,600.

Whilst those who are fined can appeal to HMRC on the ground that their income is too low, tax agents say many just pay the fines, unaware they shouldn’t have to pay them.