07 February 2024
According to a freedom of information (FOI) request by RSM UK, HMRC issued 59,546 penalties to taxpayers in 2022/23 for failing to tell the tax authority that they had an income tax liability. In the previous year, the HMRC issued 56,790 penalties for the same offence. The penalties raised £30,859,434 in 2022/23 and £30,421,513 in the previous year.
When compared to 2019/2020 and 2020/21, HMRC issued a total of 65,452 penalties and collected £34,785,720 in penalties, highlighting the scale of the increase in HMRC’s pursuit of taxpayers.
The impact of the coronavirus pandemic
HMRC more than doubled the number of penalties it issued during 2020/21 from 27,199 to 56,790 in the following year as its investigators returned to their “day jobs” after helping with the government’s coronavirus support programmes. That said, the penalties issued in each of the two most recent years exceeded the 50,923 penalties issued by HMRC in the year ended 2018/19, with penalties of just under £32m collected by the taxman during that year.
What is a failure to notify?
The law requires taxpayers to tell HMRC about their liability to pay tax in certain circumstances. HMRC must be told within certain time limits to avoid penalties for a failure to notify. The penalty regime applies to a wide range of taxes including corporation tax, capital gains tax, VAT and landfill tax. RSM’s FOI request only concerned the failure to notify penalties HMRC issued for income tax for the period 2018/19 to 2022/23, meaning more penalties are likely to have been imposed across the other forms of tax.
The circumstances which may require a taxpayer to notify HMRC of an income tax liability can include when a self-employed taxpayer first generates profits chargeable to tax, or when a taxpayer receives investment income that makes them chargeable to tax.
Normally, a taxpayer is required to tell HMRC they are chargeable to income tax within six months of the end of the first tax year they become chargeable to income tax.
Types of penalties imposed
If a taxpayer does not voluntarily tell HMRC they have an income tax liability within the required deadline it can issue a penalty. Otherwise, the taxpayer will need a reasonable excuse for failing to notify to avoid a penalty being imposed.
Most of the penalties, approximately 95%, imposed by HMRC during 2021/22 and 2022/23 were for taxpayers that had not deliberately failed to tell HMRC they had an income tax liability. Typically, any penalty imposed in these circumstances would range from 10-30% of the tax.
For the most severe cases, HMRC charges penalties ranging from 20% to 100% of the tax owed if a taxpayer has deliberately not told it about an income tax liability, or deliberately not told HMRC and tried to conceal the position. HMRC can also publish the taxpayer’s details on its website in these cases.
HMRC’s decision to impose over 116,000 penalties in the last two years shows how seriously it treats taxpayers who fail to tell them about their liability to pay income tax.