In the event you’ve ever needed to fill out a Self Evaluation tax return, you’ll understand how aggravating 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 instances, 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 entice?
Let’s break it down.
Why are folks 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 facet hustles like Etsy, supply apps, or promoting bits on-line – that you must submit a Self-Evaluation tax return.
Even when your complete earnings is lower than the private allowance (at present £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 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 once 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 assist from the charity TaxAid to get HMRC off her again.
Why is that this such an issue?
You’d suppose this might be uncommon. Nevertheless it’s not.
Based on figures launched underneath 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 high earnings brackets.
Meaning folks struggling to make ends meet, typically coping with poor well being, bereavement or housing points, are being fined for lacking paperwork they could not even have realised they wanted to do.
Worse nonetheless, a lot of these fined are in no place to struggle 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 consider they’ve incorrectly obtained a penalty for submitting late can attraction. We will 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 lot of 1000’s standing.
The issue is that many individuals don’t even know they will attraction, or are too overwhelmed to do it in time.
What’s altering?
Excellent news and unhealthy information.
A reform is deliberate. Below Making Tax Digital, the penalty system will likely be made fairer. The brand new guidelines would imply:
- No penalty for the primary missed return
- A cap of £200 complete penalties per yr
- No extra five-figure penalty money owed for individuals who owe no tax
The unhealthy information? These modifications gained’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 underneath 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 only a few hundred quid – within the final tax yr, it’s very important to verify for those who’re speculated to file a return.
Right here’s methods to keep on the protected facet:
- Use HMRC’s on-line software
Verify for those who nonetheless want to finish a Self Evaluation return: Verify right here - Inform HMRC in case your earnings drops
In the event you not meet the standards for Self Evaluation, you may ask HMRC to take you out of the system. However you must do that earlier than the deadline (often 31 January) – in any other case, the £100 positive is automated. - Enchantment if fined unfairly
In the event you get a penalty and consider it’s mistaken or harsh, you may attraction. Do it as quickly as potential and clarify clearly why you missed the deadline, particularly for those who’ve had well being, housing, or different critical issues. - Get assist for those who’re caught
Charities like TaxAid and Tax Assist for Older Individuals provide free tax recommendation for folks on low incomes.
Closing thought
Submitting a tax return could be a minefield, particularly for those who’re juggling work, life, and cash stress. However the present guidelines are hitting the mistaken folks hardest – these with the least earnings, the least assist, and the least understanding of a fancy system.
Fixes are coming, however too slowly. Within the meantime, one of the 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 anxious, 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 correct route.
Ricky Willis is the unique Skint Dad. A money-making fanatic, father, and husband to Naomi. He’s all the time on the lookout for distinctive methods to earn a bit of additional.
