HMRC cancels record number of tax return penalties

Telegraph

5 days ago

HM Revenue and Customs (HMRC) cancelled a record 46,266 fines last year after penalising taxpayers who owed no tax.
Taxpayers and businesses face an automatic fine if they miss the self-assessment or VAT deadline. However, they can appeal if they filed late through no fault of their own or if they have been mistakenly asked to complete a tax return.
The number of penalties cancelled on appeal has surged 29pc year on year to 46,266, according to HMRC's latest annual accounts.
HMRC said this was because it was now easier for businesses to appeal fines through their online accounts after the new penalty regime for VAT came into effect in January 2023 and had driven the surge in fines being overturned.
However, Andrew Park, of Price Bailey, said banking delays, administrative failings by HMRC, and poor customer service were all factors that led to taxpayers filing late.
The tax office did not pick up the phone to 35pc of callers in the first half of 2024-25, despite a target of answering at least 85pc of calls. However, figures show HMRC's customer service levels have improved since then, thanks to the deployment of extra customer service advisers.
In addition, many fines may have been cancelled because the individual owed no tax.
Mr Park said: 'Late filing penalties are disproportionately levied on people on low incomes, many of whom have no tax to pay.'
It recently emerged that 600,000 penalties have been issued over the past five years to people earning less than the tax-free personal allowance.
The think tank Tax Policy Associates, which obtained the data in a freedom of information request, has called on HMRC to scrap late penalties for those earning less than £12,570.
HMRC has introduced a new points-based penalty system for taxpayers joining the Making Tax Digital programme. Under the system, there will no longer be an immediate £100 fine if the deadline is missed, and penalties will be capped at £200 per tax return. However, those with a lower income who are outside Making Tax Digital will continue to be assessed under the old regime.
In total, the tax office issued nine million penalties, up from over eight million the year before.
Missing the self-assessment deadline results in an automatic £100 penalty, with additional penalties rolling up over time.
For businesses, failing to submit a VAT return on time results in a penalty point, with a £200 fine due once they reach their penalty threshold, set by their accounting period.
Mr Park said many taxpayers might be unaware they could appeal a fine. 'When two-thirds of appealed penalties are overturned, yet only a small fraction of the nine million issued are challenged, it suggests a significant number of taxpayers may be paying penalties they could successfully contest.'
HMRC asks those who no longer need to submit a tax return to inform them before the deadline on 31 January.
Anyone who believes they have been incorrectly fined for filing late can appeal to HMRC within 30 days of the penalty notice being issued.
A spokesman for HMRC said: 'Our penalty reforms enable customers to appeal easily and quickly online against both penalties and penalty points. Our new points-based system means only those who persistently miss deadlines will incur a financial penalty.'