If you happen to’ve ever needed to fill out a Self Evaluation tax return, you’ll understand how anxious it may be. However for a whole lot of 1000’s of individuals incomes little or no, typically 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 1000’s.
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A brand new report has discovered that, between 2018 and 2023, 600,000 folks on low incomes have been hit with penalties by HMRC, regardless that 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 folks fined in the event that they owe no tax?
If you happen to earn greater than £1,000 from something classed as self-employment – even aspect hustles like Etsy, supply apps, or promoting bits on-line – that you must submit a Self-Evaluation tax return.
Even when your whole earnings is lower than the private allowance (presently £12,570), and also you don’t owe any tax, HMRC nonetheless expects that return to be submitted.
Miss the deadline (31 January every year), and also you’ll robotically get a £100 superb. Ignore it, or miss extra deadlines, and the penalties stack up – we’re speaking £1,600 per 12 months or extra, even if you owe no tax.
One girl 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 help from the charity TaxAid to get HMRC off her again.
Why is that this such an issue?
You’d assume this is able to be uncommon. However it’s not.
In response to figures launched below the Freedom of Data Act, low-income earners have been hit with extra late-filing fines than anybody else, much more than folks within the prime earnings brackets.
Which means folks struggling to make ends meet, usually 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 folks to get their tax proper and keep away from fines altogether. Those that imagine they’ve incorrectly obtained 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 lot of 1000’s standing.
The issue is that many individuals don’t even know they’ll enchantment, or are too overwhelmed to do it in time.
What’s altering?
Excellent news and dangerous information.
A reform is deliberate. Below 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 whole penalties per 12 months
- No extra five-figure penalty money owed for individuals who owe no tax
The dangerous information? These adjustments received’t assist most low earners any time quickly.
They solely apply from April 2026 for folks incomes over £50,000, and from 2028 for these incomes over £20,000. There’s no date set for folks incomes under 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
If you happen to’ve had any self-employed earnings – even only a few hundred quid – within the final tax 12 months, it’s important to test in the event you’re purported to file a return.
Right here’s learn how to keep on the secure aspect:
- Use HMRC’s on-line device
Test in the event you nonetheless want to finish a Self Evaluation return: Test right here - Inform HMRC in case your earnings drops
If you happen to not meet the standards for Self Evaluation, you’ll be able to ask HMRC to take you out of the system. However you need to do that earlier than the deadline (normally 31 January) – in any other case, the £100 superb is computerized. - Attraction if fined unfairly
If you happen to get a penalty and imagine it’s mistaken or harsh, you’ll be able to enchantment. Do it as quickly as doable and clarify clearly why you missed the deadline, particularly in the event you’ve had well being, housing, or different critical issues. - Get assist in the event you’re caught
Charities like TaxAid and Tax Assist for Older Individuals supply free tax recommendation for folks on low incomes.
Closing thought
Submitting a tax return is usually a minefield, particularly in the event you’re juggling work, life, and cash stress. However the present guidelines are hitting the mistaken folks hardest – these with the least earnings, the least help, 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.
If you happen to’re fearful, confused, or simply need assistance figuring out what to do subsequent, you’re not alone. And we’re right here to assist level you in the proper course.
Ricky Willis is the unique Skint Dad. A money-making fanatic, father, and husband to Naomi. He’s all the time searching for distinctive methods to earn slightly additional.
