In the event you’ve ever needed to fill out a Self Evaluation tax return, you’ll understand how anxious it may be. However for a whole bunch of hundreds of individuals incomes little or no, generally nothing, the stress hasn’t simply come from paperwork.
It’s come within the type of fines from HMRC. And in some circumstances, these fines have spiralled into the hundreds.
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A brand new report has discovered that, between 2018 and 2023, 600,000 individuals on low incomes had been hit with penalties by HMRC, although they didn’t owe any tax in any respect.
How does that occur? And what are you able to do to keep away from falling into the identical lure?
Let’s break it down.
Why are individuals fined in the event that they owe no tax?
In the event you earn greater than £1,000 from something classed as self-employment – even aspect hustles like Etsy, supply apps, or promoting bits on-line – you’ll want to submit a Self-Evaluation tax return.
Even when your complete earnings is lower than the non-public allowance (at the moment £12,570), and also you don’t owe any tax, HMRC nonetheless expects that return to be submitted.
Miss the deadline (31 January annually), and also you’ll mechanically get a £100 advantageous. Ignore it, or miss extra deadlines, and the penalties stack up – we’re speaking £1,600 per 12 months or extra, even once you owe no tax.
One lady with extreme psychological well being difficulties was chased for greater than £10,000 in penalties, regardless of by no means incomes above the tax-free threshold. She ended up needing assist from the charity TaxAid to get HMRC off her again.
Why is that this such an issue?
You’d assume this might be uncommon. However it’s not.
In accordance with figures launched below the Freedom of Info Act, low-income earners had been hit with extra late-filing fines than anybody else, much more than individuals within the high earnings brackets.
Meaning individuals struggling to make ends meet, typically coping with poor well being, bereavement or housing points, are being fined for lacking paperwork they might not even have realised they wanted to do.
Worse nonetheless, a lot of these fined are in no place to battle it, particularly in the event that they don’t perceive the system, don’t have common entry to the web, or are coping with different challenges in life.
What does HMRC say?
In response to the criticism, a spokesman for HMRC mentioned:
“Our intention is to assist individuals to get their tax proper and keep away from fines altogether. Those that consider they’ve incorrectly acquired a penalty for submitting late can enchantment. We are able to cancel penalties when an inexpensive excuse is supplied.”
Additionally they identified that they’ve cancelled one-third of late penalties since 2022 – however that also leaves a whole bunch of hundreds standing.
The issue is that many individuals don’t even know they will enchantment, or are too overwhelmed to do it in time.
What’s altering?
Excellent news and dangerous information.
A reform is deliberate. Underneath Making Tax Digital, the penalty system might be made fairer. The brand new guidelines would imply:
- No penalty for the primary missed return
- A cap of £200 complete penalties per 12 months
- No extra five-figure penalty money owed for individuals who owe no tax
The dangerous information? These adjustments gained’t assist most low earners any time quickly.
They solely apply from April 2026 for individuals incomes over £50,000, and from 2028 for these incomes over £20,000. There’s no date set for individuals incomes beneath that – the very people who find themselves hit hardest below the present guidelines.
What you are able to do now to keep away from HMRC penalties
In the event you’ve had any self-employed earnings – even just some hundred quid – within the final tax 12 months, it’s very important to verify should you’re speculated to file a return.
Right here’s the way to keep on the secure aspect:
- Use HMRC’s on-line device
Verify should you nonetheless want to finish a Self Evaluation return: Verify right here - Inform HMRC in case your earnings drops
In the event you now not meet the standards for Self Evaluation, you’ll be able to ask HMRC to take you out of the system. However it’s important to do that earlier than the deadline (often 31 January) – in any other case, the £100 advantageous is computerized. - Enchantment if fined unfairly
In the event you get a penalty and consider it’s mistaken or harsh, you’ll be able to enchantment. Do it as quickly as potential and clarify clearly why you missed the deadline, particularly should you’ve had well being, housing, or different severe issues. - Get assist should you’re caught
Charities like TaxAid and Tax Assist for Older Folks supply free tax recommendation for individuals on low incomes.
Remaining thought
Submitting a tax return generally is a minefield, particularly should you’re juggling work, life, and cash stress. However the present guidelines are hitting the mistaken individuals hardest – these with the least earnings, the least assist, and the least understanding of a posh system.
Fixes are coming, however too slowly. Within the meantime, the very best factor you are able to do is know your rights, keep knowledgeable, and don’t be afraid to problem unfair fines.
In the event you’re fearful, confused, or simply need assistance understanding what to do subsequent, you’re not alone. And we’re right here to assist level you in the suitable path.
Ricky Willis is the unique Skint Dad. A money-making fanatic, father, and husband to Naomi. He’s all the time in search of distinctive methods to earn a little bit further.
