Tens of thousands of low earners fined by HMRC despite owing no tax – how to fight back and WIN
TENS of thousands of low earners have been fined by HMRC despite owing no tax.
Currently, individuals earning less than £12,570 a year do not pay income tax.
Similarly, you are not liable to pay National Insurance contributions if your income or profits (for the self-employed) are below this threshold.
However, those who are self-employed must complete a self-assessment tax return each year, even if they don't reach these earning thresholds.
Failure to file this before the paper deadline on October 31 or the online deadline on January 31 results in an automatic fine.
Recent figures obtained through an HMRC Freedom of Information request reveal that over 83,000 individuals earning below the tax threshold were issued a £100 penalty by the authorities in 2021-22.
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Of these, only 17,000 fines were later overturned on appeal. In stark contrast, merely 20,000 people earning £100,000 or more faced penalties, according to a report by in collaboration with the think tank Tax Policy Associates (TPA).
The data also showed that the £300 fines imposed for filing a year late disproportionately affected those with low incomes.
Half of the 61,000 fines were issued to individuals who earn too little to pay tax.
Of these, around 12,000 were successfully appealed. In contrast, only 5,000 people earning over £100,000 annually were fined.
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Experts are now calling for the system to be overhauled to ensure that those who don't owe any tax can get these late filing fees automatically waived.
Dan Neidle, founder of TPA, said: "It's shameful that tens of thousands of people on very low incomes, often with difficult lives, have their lives made more difficult by HMRC penalties.
"We should go back to how things were before 2010: nobody should have to pay a penalty if their income is too low for them to have a tax bill."
Who must send a tax return?
You have to fill in an annual tax return if any of the following apply to you:
- You were self-employed as a 'sole trader' and earned more than £1,000 (before taking off anything you can claim tax relief on)
- You were a partner in a business partnership
- You had a total taxable income of more than £150,000
- You had to pay capital gains tax when you sold or 'disposed of' something that increased in value
- You had to pay the high income child benefit charge
You have until October 31 2024, to submit your tax returns for the year.
If you disagree that a penalty is due, you can appeal against it to HMRC.
To challenge a fine by the HMRC, you must first write to them, and then if no agreement can be made, then you have to request an internal review.
The taxman said you should consider paying the penalty even if you appeal.
If you do not, and your appeal is rejected, you’ll have to pay interest on the penalty from the date it was due to the date you paid it.
If HMRC approves your appeal, it will repay what you’ve paid back to you with interest from the date you paid it.
You have 30 days from the date of the notice to appeal against it in writing.
How to fight back against an incorrect tax bill
HMRC can accept excuses for self-assessment delay including the recent death of a partner, unexpected hospital stays, computer failures, HMRC online crashes, and fires.
But if you’re still being fined or sent a bill when you think you shouldn’t be, you can fight back by asking HMRC to review its decision.
You can appeal online via your Government Gateway account or by filling out and returning a .
If you still disagree, you can take your case to the tax tribunal – again, just make sure you do this within 30 days of the review decision.
You can also consider applying for Alternative Dispute Resolution by using the government's online form at tax.service.gov.uk/shortforms/form/ADREng.
How do I appeal?
Before you make an appeal it is important you have the following documents to make sure you can fight your case to the best of your ability:
- The date the penalty was issued
- The date you filed your Self Assessment tax return (if you have submitted it)
- The date you paid your tax (if you have paid it)
- Details of your reasonable excuse for filing your return late or not making your payment on time
If you are sent a letter by the taxman, you will be given an option to appeal.
You can either accept the offer of a review or appeal to the tax tribunal.
If you accept a review by HMRC
If you have your review looked at by the HMRC, the tax decision will be reviewed by someone who was not involved in the original decision.
HMRC will tell you when you can have a review, and they can take up to 45 days to process.
They usually get back to you in writing.
If you appeal to the tax tribunal
You can appeal to the tax tribunal if you disagree with HMRC’s review decision - you must usually do this within 30 days of the review decision.
Reviews by HMRC are usually quicker than appeals to the tax tribunal - but it is entirely up to you what route you would prefer to go down.
How much can you be fined?
You will incur a penalty if you are required to submit a tax return and miss the deadline for either filing it or paying your bill.
A late filing penalty of £100 applies if your tax return is up to three months overdue.
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Additional penalties will be imposed if the delay extends beyond three months or if your tax bill is paid late.
You'll also be charged interest on late payments.
How do I file a tax return?
TO file a self assessment tax retun, you'll need to register with HMRC first, which will then issue you with a Unique Taxpayer Reference (UTR).
You must register for self assessment by October 5 if you have to file a tax return and you have not sent one before.
You can do so by visiting www.gov.uk/register-for-self-assessment.
If you've previously registered and already have a UTR, you don't need to go through this step again.
Once you've got your UTR, you can sign in via the "Self Assessment tax return" section of HMRC's website by visiting www.gov.uk/log-in-file-self-assessment-tax-return.
You can then file your self assessment tax return online.
The deadline for sending a return online is January 31 every year.
If you need a paper copy of the main Self Assessment tax return, call HMRC on 03000 200 3610 and request an SA100 form.
The deadline for sending a return using a paper form is October 31 every year.
You need to pay the tax you owe by midnight on January 31 each year.
HMRC accepts your payment on the date you make it, not the date it reaches its account.
File late and HMRC will issue you with a fine.