HMRC's late penalties for self-assessment surge by 14%

More HMRC penalties hitting self-assessors; fewer let-offs when appealing against them and a narrower definition of what constitutes a ‘reasonable excuse’ to overturn them.

These fresh findings from Moore Stephens came after the chartered firm obtained official figures from the Revenue. The headline out of them seems to be that late penalty recipients are up 14%.

In fact, the number of self-assessors penalised leapt from 291,000, to 331,000 for the 2016/17 tax year -- the latest full set of figures which HMRC has available, the firm said.

'Officers like robots'

But taken alongside the other findings covered in the department’s reply to the firm, the headline finding must be how taxpayers are up against an increasingly inhumane, automated taxman.

“Looking at these disclosures and based on our own experience too, HMRC officers are treating almost all situations as avoidance and acting more like robots,” said DNS Associates.

The contractor accountancy firm cited not just the penalty leap, which is even higher when set against the 283,000 people penalised in 2014/15, but also to a dwindling chunk of successful appeals.

'Less sympathetic'

Specifically, just 14% of fines for late payment of self-assessment tax bills were cancelled by HMRC last year, a fall from the 16% and 18% cancelled in the two years previously.

“This could suggest that HMRC is becoming less sympathetic to taxpayers who appeal… even though many have genuine and legitimate reasons”, said Moore Stephens.

A further sign of HMRC’s unsympathetic stance is that it appears to be “narrowing the grounds for what it considers to be a ‘reasonable excuse’ for late payment.”

'All for strictness'

So “even though they want to” pay, adds Moore Stephens associate Tim Woodgates, self-assessors might not be able to, due to illness, bereavement or not receiving HMRC reminders.

“I’m all for strictness”, reflected DNS Associates’ managing director Sumit Agarwal.

"As long as HMRC is providing clarity around the rules of what constitutes a ‘reasonable excuse’ if it is changing. Real-world, up-to-date situations would help as examples. But the key question for HMRC is; does all this fining of taxpayers change behaviour for the better?”

'Cashflow dent'

According to Mr Woodgates, taxpayers could simply be struggling to meet their tax obligations on time “as the economy struggles,” often despite their best intentions.

Emily Coltman, chief accountant at FreeAgent, said: “Many taxpayers ask why they have to make Payments on Account, especially given the dent it can put in their cashflow.

“These payments are what confuses new self-assessment taxpayers the most. Someone who's due to pay more than £1,000 of tax and doesn't pay tax at source on their income finds themselves having to pay not only the total amount of tax they're due for that year, but half as much again on account for the following year.”

'Not the end'

Self-assessors who are 30 days or more late in paying HMRC get a fine of 5% of all the outstanding tax, rising to another 5% and all the outstanding at six months late, and then the same again at 12 months’ late.

But to some ‘tax-payers’, the actual requirement to pay the Revenue needs pointing out.

“Sometimes they do not realise that as well as filing their tax returns, they must pay their tax to HMRC, and that this is a separate process,” Ms Coltman said. “Filing the return is not the end!”

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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