HMRC PENALTIES JUMP 28 PER CENT TO £571M IN PAST YEAR
Released On 18th Jul 2022
Penalties imposed by HM Revenue & Customs (HMRC) on taxpayers have jumped 28 per cent from £445 million to £571 million in the past year.
HMRC increasing clampdown on tax avoidance is part of its efforts to make up for revenue lost during the pandemic.
As well as a drop in tax take caused by the slowdown of the economy during COVID, the Government also invested heavily in programmes like furlough to help the economy through the lockdown.
According to the Public Accounts Committee, the Government has lost at least £15 billion in tax-related fraud and error due to COVID. An increase in the number of tax investigations being opened by HMRC is inevitably leading to more penalties.
Up until recently, HMRC had been exercising a considerable degree of forbearance towards individuals falling behind on their tax affairs.
However, the end of the pandemic has caused a noticeable shift as HMRC returns to business as usual.
One other way HMRC could potentially boost its income is by moving taxpayers that have made a mistake with their tax returns from one category of penalties to a harsher category.
For example, HMRC has some leeway to decide whether an individual should face a penalty for failing to take “reasonable care” or a bigger penalty for making a “deliberate” error. HMRC calculates the severity of its penalties using the following categories:
- If a penalty arises due to a lack of reasonable care, the penalty will be between 0 per cent and 30 per cent of the unpaid tax due
- If an error is deliberate, the penalty will be between 20 per cent and 70 per cent of the unpaid tax due
- If an error is deliberate and concealed, the penalty will be between 30 per cent and 100 per cent of the unpaid tax due
Taxpayers will start to see their tax affairs even more heavily scrutinised as in-person visits and property searches pick back up to pre-pandemic levels.
The huge spike in penalties shows HMRC is ramping up pressure on taxpayers in arrears. With HMRC itself is under a lot of pressure to fill the hole in the country’s finances due to the pandemic.
It is becoming more aggressive in going after undeclared tax and it is likely that the number of tax investigations will rise as a result.
To prepare for what can very easily be a resource-draining investigation, businesses and individuals should ensure they have subscribed to our fee protection service to safeguard against the major impact an investigation can have.
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