You’d think that anyone earning less than the Income Tax threshold would avoid HMRC fines. Unfortunately, this isn’t always the case. Figures now show that, for the 2021/22 tax year, 95,000 people earning less than the £12,570 threshold got slapped with HMRC fines.

Why people got HMRC fines

The people who received HMRC fines were all registered for Self-Assessment. The main reason people register is because they are self-employed. However, there are other reasons you might have to register. For example, you may need to register if you rent out buy-to-let property, you get income from savings, investments or dividends, or if you receive tips or commission. You can check whether you need to register using this tool.

If you are registered, you have to complete and submit an annual Self-Assessment Tax Return. This is still the case, even if you don’t earn enough to put you into Income Tax.

Let’s take a scenario. You are a stay-at-home parent and your partner earns the main household income. You decide to earn some extra money by selling second-hand items on eBay. If your gross annual income from this exceeds £1,000, you need to register for Self-Assessment. You do this and, in your first year of trading, you make £5,000.

Even though this amount will result in £0 tax bill, you still need to tell HMRC about your earnings. If you don’t submit a tax return by the 31st January deadline, you immediately get hit with a £100 penalty.

Fines grow the longer you leave them

Unfortunately, the penalties don’t always end there. If you don’t submit your tax return by the end of April, you then get charged £10 per day until you do. This can ratchet up to a maximum on £900. If you’ve still not submitted the return by the end of July, you’ll be hit for another £300.

So, even though you don’t owe any tax, you can quickly find yourself facing penalties of £1,300.

HMRC fines changed in 2011

It’s possible that some people have recently re-registered for Self-Assessment without being aware of the changes introduced in 2011. Before then, there were no HMRC fines for late tax returns, as long as you paid any tax owed on time. So, as you didn’t owe tax, you didn’t get a penalty for a late return. Unfortunately that system is long gone. HMRC wanted to clamp down on people who were persistently late in filing their returns.

I’ve been fined. What do I do?

If you’ve received a penalty and you don’t owe tax, get in touch with HMRC as soon as possible. You may be able to come to an arrangement. While 95,000 low-income people got HMRC fines for 2021/22, some 155,000 were initially issued with these penalties. This suggests that 60,000 of the penalties got cancelled.

Help with Self-Assessment

HMRC normally gets in touch to tell you when to complete your tax return. Even if you don’t earn enough to get taxed, fill yours in. That way you’ll avoid penalties.

If your business then starts to grow and you do need to start paying tax, be sure to put enough money aside. If you’d like a professional to take care of your tax return – and advise you on ways of legitimately saving tax – talk to a member of the THP team today.

Need further advice on any of the topics being discussed? Get in touch and see how we can help.

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    About Jon Pryse-Jones

    Since joining THP in 1978, Jon Pryse-Jones has been hands on with every area of the business. Now specialising in strategy, business planning, and marketing, Jon remains at the forefront of the growth and development at THP.

    An ideas man, Jon enjoys getting the most out of all situations, “I act as a catalyst for creative people and encourage them to think outside the box,” he says, “and I’m not afraid of being confrontational. It often leads to a better result for THP and its clients.”

    Jon’s appreciation for THP extends to his fellow team members and the board.  “They really know how to run a successful business,” he says.  He’s keen on IT and systems development as critical to success, and he continues to guide THP to be at the cutting edge and effective.

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