HMRC issued late-filing penalties to 184,000 low earners in 2021/22, including many who did not owe any tax, according to research from thinktank Tax Policy Associates (TPA).
TPA claims that many "vulnerable people" either misunderstood the rules or missed the deadline due to difficult circumstances, making it harder for them to appeal the decision.
Under current legislation, self-employed individuals and landlords with annual incomes of £1,000 or more must file a self-assessment tax return each tax year, even if they earn below the £12,570 personal allowance threshold.
Failing to submit a return in time will result in a fine of at least £100. TPA claims that, for some low earners, this penalty is equivalent to more than half their weekly income.
The think tank also found that, between 2018 and 2022, around 40% of all late-filing penalties were issued to individuals who did not make enough to pay income tax.
Commenting on the report's findings, TPA said that late filing penalties should be automatically cancelled in cases where there is no taxable income:
"We believe the law and HMRC practice should change. Nobody filing late should be required to pay a penalty that exceeds the tax they owe."
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