HMRC to issue £100m in fines after 1.1m miss tax return deadline
The taxman is to levy more than £100m in fines as the Conservatives’ freeze on allowances drags thousands into paying more tax.
An estimated 1.1 million people missed the January 31 deadline, HM Revenue and Customs said – an increase of around 100,000 compared with last year.
Tens of thousands more people will need to file self-assessment forms for the first time this year because of the Treasury’s decision to freeze income tax bands until 2028.
Late filers will be fined an initial £100, which applies even if there is no tax to pay or the tax due is paid on time.
HMRC was under pressure to extend the self assessment deadline on Wednesday after taxpayers complained of 40-minute wait times. The tax authority has repeatedly come under fire for its declining customer service levels, having missed all of its performance targets last year.
In December it revealed that it would only allow “priority” callers and the “digitally excluded” to speak with tax advisers on the phone from December 11 until the January deadline. The move is part of the tax office’s plan to move taxpayers onto its digital services and away from its phone lines.
Sir Steve Webb, a former pensions minister and now partner at the consultancy LCP said: “If you have to file a tax return there is something complicated going on in your finances,” he said.
“You’re either a higher rate taxpayer, you’re self employed or you’ve got rental income from a property. The freeze on the higher-rate income tax threshold is driving a lot of this.”
Harriett Baldwin, the MP for West Worcestershire, said the Treasury Committee would be writing to HMRC to understand the impact of the reduction of phone line capacity on waiting times and late fines.
Baroness Ros Altmann said it was troubling that the tax system was becoming increasingly difficult for ordinary people to navigate.
“HMRC say they want to make things easier for taxpayers but if those who need to phone the helplines can’t get through and therefore don’t know how to fill in the return, they risk being penalised for non compliance despite best efforts to do so,” she said.
“If you are working full time you can’t always reach HMRC or spend time hanging on for ages.
“I would hope that allowances will be made for those who can prove they tried to comply with the deadline but were unable to do so because their efforts were thwarted by lack of response.”
The delays have prompted the Institute of Chartered Accountants in England and Wales (ICAEW), an accountancy trade body, to call for a “fundamental review” of HMRC’s service performance.
Chris Etherington, of RSM, said the tax office had become increasingly poor at alerting individual taxpayers when they needed to submit a self-assessment form.
“HMRC has reduced its correspondence significantly, likely as a cost-cutting measure,” he said. “But it is therefore not surprising that so many people have failed to meet the deadline.
“That has been compounded by the fact that people’s questions are just not getting through to HMRC. We have one of the most complicated tax systems in the world, so for people who are being dragged into this net for the first time, of course they will have questions and want to speak with a real person on the telephone.
“It is a real failure of service to not have enough staff who are trained properly to deal with this,” he said.
While helplines are backlogged, taxpayers who fail to fill in their form in the next three months will be charged an additional daily penalty of £10 per day, up to a maximum of £900.
After six months, the taxman will add a further penalty of 5pc of the tax due or £300, whichever is higher. After a year, it will charge another 5pc or £300.
Dawn Register, of the accountant BDO, added that first-time filers likely faced delays in getting a tax reference and setting up online. “It can take well over four weeks just to get started, and even if you want to do it yourself the HMRC website is not very intuitive,” she said. “The whole thing is cumbersome and affects more and more people on low and middle incomes.”
Maxwell Marlow, of the Adam Smith Institute, said HMRC’s systems were “sclerotic and confusing” for taxpayers, leaving many unable to fulfil their legal duties. “It is particularly unfair to charge a financial penalty when HMRC are responsible for the helpline backlog. HMRC should fully review their tax interface to make it more user friendly, and less filled with accountancy jargon,” he said.
The tax office can also charge a late payment interest rate of 7.75pc, the highest level since the 2000s. The rate on late taxes are charged at the Bank Rate plus 2.5 percentage points – however, the interest on tax refunds to individuals and businesses is charged at the base rate minus one percentage point.
HMRC collected a record £346m in interest from taxpayers who paid late or arranged a “Time to Pay” payment plan in the year to October 2023, more than double the £159m it made the year prior.
Myrtle Lloyd, of HMRC, said that anyone who has yet to file and is concerned they cannot pay in full may be able to spread the cost of what they owe with a payment plan. “There are many ways to pay, including online, using the HMRC app, by bank transfer, or setting up a Time to Pay payment plan. There is a video on YouTube to help customers set up an online payment plan.”
Taxpayers who file or pay late but have a “reasonable excuse” can appeal their penalties. Emma Rawson, of the Association of Taxation Technicians, said: “This might be the case if something outside your control stopped you from filing on time – for example, you or a family member were taken seriously ill, you had a fire, flood or theft or serious computer problems.
“However, HMRC won’t accept being too busy or forgetting about the deadline as a reasonable excuse. They’ll also expect you to have filed your tax return as soon as the excuse ended.”
A spokesman for HMRC said a record 11.5 million people filed their tax returns on time and were able to use “online services to quickly and easily get the help they needed” with agents on the phone responding to “urgent and more complicated queries”.
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