HMRC penalties for overdue tax on the rise

Out-Law News | 02 Sep 2019 | 3:52 pm | 1 min. read

HM Revenue & Customs (HMRC) is handing out increasing number of penalties to people submitting via self-assessment for overdue tax payments, with the value of outstanding tax due also high.

The value of overdue tax for the 2017/18 financial year, which is still being collected in, currently sits at £1.6 billion. That compares to final figures of £1.83bn for 2016/17.

HMRC is able to impose a penalty of 5% of the tax owed on individuals who are six months late paying, with a further fine of 5% if they are 12 months late. It has the ability to cancel penalties if individuals can provide a suitable excuse.

In value terms, just 8% of the late payment penalties raised for 2017/18 to date have been cancelled, compared to 22% of penalties raised in 2016/17, and 22.9% in 2015/16.

Meanwhile the number of six-month late-payment penalties which were not adjusted to zero, or cancelled, climbed steadily between 2012/13 and 2016/17, reaching a high of 116,700 penalties handed out in 2016/17. That represented 1.01% of all tax returns received, a record high both proportionally and numerically despite growing numbers of people making self-assessment returns.

However there was a slight drop in the number of penalties issued after 12 months in 2016/17. These fell from 67,300 in 2015/16 to 65,700, representing 0.57% of all tax returns – the same proportion as in 2014/15.

The number of penalties cancelled or adjusted has fallen year-on-year for the last four years for awhich HMRC had data. A total of 24,900 six-month penalties were cancelled or adjusted in 2013/14, compared to just 14,100 in 2016/17. Meanwhile HMRC cancelled 14,200 12-month penalties in 2013/14, but only 2,800 in 2016/17.

A spokesperson for HMRC said: “We want people to pay on time rather than receive penalties. If customers are unable to pay on time, they may avoid penalties by contacting HMRC as soon as possible and we can discuss whether it might be possible to set up a payment plan.”

The data was released following freedom of information requests.

Earlier this year HMRC released figures showing that the value of unpaid tax in the UK had risen to £35 billion, representing 5.6% of tax liabilities, with over £10bn of the shortfall due to tax evasion and other criminal activity. It was the third successive year in which the ‘tax gap’ had risen.