Almost 1.6 million taxpayers were hit with fines or penalties for their self-assessment tax return in the 2021/22 financial year, with the potential for more people to be affected as frozen rates and reduced allowances drag them into new tax bands.
According to the figures from a Freedom of Information request by AJ Bell, 1.4 million taxpayers were charged interest for paying their tax bills late and a further 280,000 people paid penalties for filing their return late, with some 90,000 taxpayers hit with both.
A total of £188 million has been paid to HMRC in fines and interest so far, with the average filing penalty standing at £350. However, AJ Bell warned these figures could rise as they are updated, as in previous years, and could see the average penalty once again exceed £500 in 2021/22.
Anyone hit with interest on their tax bill will also notice a sharp rise, the firm said, as it is based on the Base Rate plus 2.5%, meaning it now sits at 7.5%, up from just 2.6% at the start of 2022.
AJ Bell said the findings illustrate the challenges faced by taxpayers navigating a “complex tax system” and warned that the government’s frozen thresholds, alongside cuts to capital gains tax and dividend allowances, will likely see more taxpayers being hit with penalties in 2023 and 2024.
Laura Suter, director of personal finance at AJ Bell, said: “As the government drags more people into paying tax via self-assessment, we’ll see more and more taxpayers hit by these penalties. With the tax-free allowance on capital gains and dividend taxes being dramatically cut in the past two years, more people will have to file a tax return for the first time in their lives.
“Clearly some people are going to struggle to complete the return, or may not even realise they have to file one in the first place. You only have to look at the number of people calling HMRC and the volume of those that go unanswered to see the struggles that lots of taxpayers have.”
Taxpayers can get their fees and charges waived but only if they meet a certain list of criteria from the taxman. Not knowing that a tax return was needed or not understanding how it works is not sufficient.
“One way to avoid late filing is to set regular calendar reminders to prompt you to file on time, and giving you sufficient time to gather the required information and prepare the return. Another alternative is to outsource it to a professional,” Suter added.
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