Should 31 January tax return penalties be delayed again?

01 January 2023

It was recently reported by HMRC that as at 31 December 2022, 5.7 million (approximately 47%) taxpayers in self assessment still needed to submit their tax returns by 31 January 2023. The total number of returns due to be submitted by the end of the month remains to be confirmed but is likely to exceed the 12.2 million who were required to submit a tax return last year due to the freezing of allowances and more individuals being dragged into the self assessment net.

That may sound like there are a lot of tax returns still outstanding but it is broadly in line with where the figures stood in 2020, the last ‘normal’ January, prior to the pandemic. As at 1 January 2020, HMRC reported around 5.4 million taxpayers still needed to submit their tax returns from a total of approximately 11.7 million tax returns due. That’s approximately 46% of taxpayers in self-assessment. So it could be said that taxpayers are currently holding up their side of the bargain.

In 2020, around 958,000 taxpayers missed the 31 January deadline. A lot has obviously changed between 2020 and 2023, not least HMRC’s performance levels in that time. In the last two years, HMRC has acknowledged the challenges both they and taxpayers will have faced due to the pandemic and pushed the deadline to avoid a late filing penalty back a month to 28 February.

However, whilst taxpayers appear to have done their part to resume normal service, the same cannot necessarily be said of HMRC. As highlighted in the report of our findings from a recent Freedom of Information request, HMRC’s customer service staff numbers have declined substantially in the last two years and the amount of training available to staff can be as little as two weeks before they are asked to help taxpayers resolve their queries.

HMRC has recently published its latest performance report and the average time it takes for taxpayers to get through to HMRC to have their queries answered in November 2022 compared to November 2019 (ie the same period prior to the pandemic) has increased by a staggering 193%. It took nearly ten minutes longer for a taxpayer to get through to someone to address their query in November 2022 than three years prior and the reality is that it is likely to take much longer now.

Given this slide in performance standards and with taxpayers finding it harder to get answers to questions they may have ahead of the 31 January deadline, many taxpayers may reasonably question whether it is right that HMRC potentially benefits from a windfall in late payment penalties when they may be partly culpable for the issue. If a million taxpayers are late with their returns as in 2020 then HMRC could see late filing penalty revenues exceed £100m and it could be much higher than this given the number of returns filed late last year.

HMRC broadly expects taxpayers to now have their affairs in order, with excuses relating to Covid-19 likely to be given short shrift. Unfortunately, the same cannot be said for themselves. Consideration should therefore be given as to whether it is fair and just for HMRC to charge late filing penalties in these circumstances or whether such penalties should be delayed until 28 February, as per the last two years, to provide both themselves and taxpayers with the breathing room to deal with the tax return filing pressures.