Late payment penalty bonanza for HMRC

HMRC estimated that 1.1m taxpayers missed the self-assessment deadline of 31 January 2024, leading to an initial potential penalty windfall that could be as high as £110m. 

That represented an increase on the number of taxpayers who missed the deadline last year on 31 January 2023, which HMRC estimated was 1m taxpayers. 

The volume and increase in the number of late returns this year suggests there were wider challenges being faced by taxpayers. The number of taxpayers missing the filing deadline appears more in line with the number of late filing penalties issued in the 2021/22 tax year, which was impacted by the pandemic. 

In data obtained by RSM UK in a freedom of information request from HMRC, it has been confirmed that the number of late filing penalties levied in the 2021/22 tax year was 1,170,900. Of those penalties, 250,700 were either cancelled or reduced to nil. The net number of late filing penalties levied in 2020/21 was therefore 920,200, meaning the total late filing penalties in that year were likely to be at least £92m.

The penalty wheel of fortune does not stop spinning there. Many taxpayers are aware that the self-assessment tax payment deadline is 31 January following the end of the tax year and that interest is due on late payments. What is less well known is that if the tax remains unpaid after 30 days, a 5% penalty of the unpaid tax can be levied.

In further data released to RSM UK following a freedom of information request, HMRC has confirmed that 421,000 individuals were subject to this 5% penalty for tax due on 31 January 2023. The total amount of these penalties paid was £32.4m.

With more tax returns being filed late this year, it would not be a surprise if there was also an increase in the number of individuals who still need to pay their tax. The date of 2 March 2024 could prove an expensive one in the diary for some. With interest already being charged at 7.75% on overdue tax, a further 5% penalty could compound some taxpayers’ woes who are already struggling financially.