HMRC issues over 116,000 failure to notify penalties to taxpayers

According to a freedom of information (FOI) request by RSM UK, HMRC issued 59,546 penalty notices to taxpayers in 2022/23 for failing to tell the tax authority that they had an income tax liability. In the previous year, HMRC issued 56,790 notices for the same offence. The penalties raised £30,859,434 in 2022/23 and £30,421,513 in the previous year.

Compared to 2019/20 and 2020/21, when HMRC issued a total of 65,452 notices and collected £34,785,720 in penalties, this highlights the scale of the increase in HMRC’s pursuit of taxpayers.

The impact of the coronavirus pandemic

Between 2020/21 and 2021/22, HMRC more than doubled the number of penalty notices it issued as its investigators returned to their ‘day jobs’ after helping with the government’s coronavirus support programmes. That said, notices in each of the two most recent years exceeded those 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, and 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 failure to notify penalties in respect of income tax for the period 2018/19 to 2022/23, so more penalties are likely to have been imposed for other taxes in that same period. 

The circumstances that may require a taxpayer to notify HMRC of an income tax liability can include when a self-employed individual first generates profits chargeable to tax, or when a person receives investment income that makes them chargeable to tax. 

Normally, taxpayers must tell HMRC within six months of the end of the first tax year in which 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 timeframe a penalty can arise. Where the taxpayer can demonstrate they had a reasonable excuse for failing to notify, the penalty may be withdrawn. 

The vast majority of the failure to notify liability to income tax penalties, approximately 95%, imposed by HMRC during 2021/22 and 2022/23 were on taxpayers that had not deliberately failed to tell HMRC they had such a 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 it 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 and should be borne in mind, in particular, by those with a new income source .