Low earners fined by HMRC even though they don’t owe tax

Tens of thousands of people are being fined for failing to file a tax return on time, despite not earning enough to even pay tax.

Over 83,000 people earning under the tax threshold of £12,570 were fined £100 in the 2021-2022 tax year because they missed the self-assessment deadline, according to thinktank Tax Policy Associates (TPA).

Only around 17,000 of these fines were cancelled after appealing to HM Revenue & Customs (HMRC).

By contrast, only 20,000 people earning at least £100,000 were fined.

Those on a low income were even worse affected if they filed a year past the deadline.

Half of the 61,000 £300 fines were handed out to people who didn’t earn enough to pay tax. Of these, 12,000 successfully appealed the fines. Only 5,000 people earning six figures were fined.

Voices of concern

The TPA has raised concerns about vulnerable individuals or those struggling with money being hit with fines. The thinktank's founder Dan Neidle has called for reform.

He says no one should be fined “if their income is too low to have a tax bill”.

An anonymous self-employed photographer told the Observer newspaper how he has faced multiple fines, despite not earning enough to pay tax since 2017.

He felt overwhelmed by HMRC’s reminders and described the process as “guilty until proven innocent.”

Moving forward

HMRC is bringing in a new system which warns people before they’re fined. But it’ll overlap the current system for a few years. Campaigners say this is unfair and will cause confusion.

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.

“The overwhelming majority of customers file on time.”

Disagreeing with a fine

If you think a fine from HMRC is unfair, you can take action:

• Contact HMRC within 30 days of receiving a penalty notice.
• Explain why you disagree with the fine – you’ll need to have a reasonable excuse or think it’s wrong.
• You can ask for a fine to be cancelled if you don’t need to send HMRC a tax return.