08-07-2025
HMRC issues 600,000 fines – to people who owe no tax
HM Revenue and Customs (HMRC) has charged 600,000 late penalties to low earners despite them owing no tax.
The tax office applies an automatic £100 fine if someone misses the tax return deadline of January 31, with penalties increasing over time and escalating to more than £1,600.
Workers who earn more than £1,000 in self-employment income are required to file an annual tax return, which means even those below the £12,570 tax-free allowance could be hit with a penalty for late filing.
Between 2018 and 2023, 600,000 penalties were charged to taxpayers with no income tax liability, according to figures obtained by Tax Policy Associates via a Freedom of Information request. This includes multiple penalties received by the same individual.
Dan Neidle, of the think tank, said he had heard from 'hundreds' of those affected, many of whom had serious physical and mental health difficulties.
He said: 'The Government should act, and stop the most vulnerable in society having their lives made harder by HMRC.'
The Freedom of Information request revealed that those who owed no tax were more likely to face a late penalty than any other group based on income decile.
Some may have been fined by mistake after earning less than the £1,000 trading allowance.
Anyone who believes they have been incorrectly fined for filing late can appeal directly to HMRC within 30 days of the penalty notice being issued.
HMRC said it had cancelled around one third of late submission penalties over the past three years.
The previous Conservative government introduced a new penalty regime, which it described as 'simpler and fairer'. Under the points-based system, there will no longer be an immediate £100 fine if the deadline is missed, and penalties will be capped at £200 per tax return.
However, only taxpayers joining Making Tax Digital will be subject to the new regime. Those earning over £50,000 in self-employment income will be brought into HMRC's digital drive from April 2026, dropping to £20,000 by 2028.
Taxpayers outside of Making Tax Digital will continue to be assessed under the old regime.
The Low Income Tax Reform Group (LITRG) has warned this creates a 'two-tier' system, where low earners pay thousands of pounds more for filing late.
Antonia Stokes, of the group, said: 'LITRG would like to see HMRC speed up its roll-out, so that all taxpayers can benefit from the new penalty regime.
'If this is not possible, there are a series of tweaks HMRC could make to the existing regime that will bring it closer to its replacement, and mitigate some of these harshest effects.'
These tweaks include greater leniency towards those who have missed the deadline just once, and easier exit from self-assessment for those who no longer need to file a tax return.
A spokesman for HMRC said: 'Our aim is to help people to get their tax right and avoid fines altogether, and 11.5 million customers filed their 2023-24 tax return on time. If you no longer need to file a tax return, including because your earnings are lower, check using our online tool and then tell us to avoid a penalty.
'Those who believe they've incorrectly received a penalty for filing late can appeal. We can cancel penalties when a reasonable excuse is provided.'
