Should you’ve ever needed to fill out a Self Evaluation tax return, you’ll know the way disturbing it may be. However for a whole bunch 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 individuals on low incomes have been hit with penalties by HMRC, despite the fact 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 individuals fined in the event that they owe no tax?
Should 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 could submit a Self-Evaluation tax return.
Even when your whole revenue is lower than the non-public 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 annually), and also you’ll routinely get a £100 positive. Ignore it, or miss extra deadlines, and the penalties stack up – we’re speaking £1,600 per yr or extra, even whenever 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 suppose this could be uncommon. However it’s not.
In line with figures launched beneath the Freedom of Info Act, low-income earners have been hit with extra late-filing fines than anybody else, much more than individuals within the high revenue 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, lots 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 stated:
“Our purpose 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 attraction. We are able to cancel penalties when an affordable excuse is supplied.”
In addition they identified that they’ve cancelled one-third of late penalties since 2022 – however that also leaves a whole bunch of 1000’s standing.
The issue is that many individuals don’t even know they’ll attraction, 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 shall be made fairer. The brand new guidelines would imply:
- No penalty for the primary missed return
- A cap of £200 whole penalties per yr
- No extra five-figure penalty money owed for individuals who owe no tax
The dangerous information? These modifications 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 under that – the very people who find themselves hit hardest beneath the present guidelines.
What you are able to do now to keep away from HMRC penalties
Should you’ve had any self-employed revenue – even only a few hundred quid – within the final tax yr, it’s very important to verify when you’re imagined to file a return.
Right here’s the right way to keep on the protected aspect:
- Use HMRC’s on-line instrument
Verify when you nonetheless want to finish a Self Evaluation return: Verify right here - Inform HMRC in case your revenue drops
Should you not meet the factors for Self Evaluation, you’ll be able to ask HMRC to take you out of the system. However you must do that earlier than the deadline (normally 31 January) – in any other case, the £100 positive is automated. - Attraction if fined unfairly
Should you get a penalty and consider it’s unsuitable or harsh, you’ll be able to attraction. Do it as quickly as attainable and clarify clearly why you missed the deadline, particularly when you’ve had well being, housing, or different critical issues. - Get assist when you’re caught
Charities like TaxAid and Tax Assist for Older Individuals supply free tax recommendation for individuals on low incomes.
Remaining thought
Submitting a tax return could be a minefield, particularly when you’re juggling work, life, and cash stress. However the present guidelines are hitting the unsuitable individuals hardest – these with the least revenue, 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.
Should you’re apprehensive, 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 at all times searching for distinctive methods to earn a bit of further.
