Low earners fined for not filing unnecessary Self Assessment Tax Return

According to recent data 184,000 low earners (reduced to 126,000 after appeals) were fined by HMRC for not filing their Self Assessment Tax Return on time for the 2020–21 tax year, despite earning less than the personal allowance threshold (£12,500 in the 2020–21 tax year) which made them exempt from paying tax.

Analysis carried out by independent think tank Tax Policy Associates (TPA) found that 92,000 people who were amongst the lowest paid 10% of the population were fined for not submitting their 2020–21 tax return on time, compared with just 39,000 of the highest paid 10% of the population.

The TPA’s founder Dan Neidle has issued the following statements:

“Something’s gone badly wrong when 40% of HMRC’s late filing penalties are issued to people who earn too little to pay tax. The law needs to change.”

“People are falling into debt and, in one case we’re aware of, becoming homeless as a result of HMRC penalties. Advisers working with low-income taxpayers see this kind of situation all the time, and filing appeals for late-payment penalties often makes up a significant amount of their work.”

“These are vulnerable people, at a low point in their lives – and the same difficulties which meant they missed the filing deadline mean they often won’t lodge an appeal, and may take months before they pay the penalties (racking up additional penalties in the meantime).”

A spokesperson for HMRC added:

“The government has recognised that taxpayers who occasionally miss the filing deadline should not face financial penalties, and has already announced reform of the system.

“Deadlines for returns are necessary for the efficient functioning of the tax system, though, and we strongly encourage anyone who does not need to file a return to tell HMRC.

“Our aim is to support all taxpayers, regardless of income, to get their tax right, and details of what to do if a person no longer needs to file a return are included in reminder letters every year.”

How do you know if you need to file a Self Assessment Tax Return?

Tax payers whose only income is through employment don’t need to submit a Self Assessment Tax Return, but if you’ve received any other sources of income then it’s likely that you’ll need to submit one – even if you have no tax to pay. If it’s your first time submitting a tax return, you’ll need to register before 5th October. The government website has a handy tool you can use to establish whether or not you need to send a tax return.

What if you believe you no longer need to send a tax return?

If your circumstances have changed and you think that you’re no longer required to send a tax return, it’s important that you contact HMRC as soon as possible to explain this. HMRC will need to review and agree your situation; without this agreement it’s likely that you’ll be fined for failing to submit a return.

What are the penalties for missing Self Assessment deadlines?

HMRC charges separate penalties for failing to submit your return and/or pay your tax bill on time, so it’s extremely easy for these penalties to accumulate quickly if you miss both deadlines. We’ve covered the penalties for each below.

Missing the deadline for filing your Self Assessment

• Automatic £100 fine as soon as the deadline is missed (even if you don’t owe any tax!)
• After 3 months, an additional penalty of £10 per day is due
• After 6 months, either a £300 penalty or 5% of the tax due will be charged (whichever is highest)
• After 12 months, a further £300 penalty or 5% of the tax due will be charged (again, whichever is highest)

Missing the deadline for paying your tax bill

• If payment is over 30 days late, you’ll be charged 5% of the tax due
• If payment is 6 months late, you’ll be charged a further 5% of the tax due
• If the payment is 12 months late, you’ll be charged a further 5% of the tax due
• In addition, you’ll also be charged interest on any late payments (the rate of which is set to increase to 7.5% from 11th July)

For further information regarding penalties, please visit the government website. Here you’ll also find a tool you can use to help you estimate any penalties for late submission or payment of your Self Assessment.

If you’d like additional support and guidance regarding your Self Assessment requirements, please don’t hesitate to get in touch with our team of friendly accountants. We work with hundreds of small businesses every year and our Self Assessment service is hugely popular. You can find out more about this service via our website.