Tax fines hit record high as HMRC targets private tutors

The number of people hit with fines for late tax returns has soared to a record high as HM Revenue & Customs (HMRC) boosts its coffers by targeting self-assessment taxpayers.

The government’s tax office has fined 1.5 million people for filing their tax returns late in the last year, up 8 per cent from the previous period and 56 per cent more than five years ago, it has emerged.

It has also launched a new crackdown on private coaches and tutors in the latest of a series of tax amnesties.

The increase in the number of penalties dished out – even to those who don’t owe tax – follows a sharp rise in the size of the fines that HMRC can levy, under a new penalty regime introduced in April.

Previously there was no penalty for late filing, as long as the tax was paid. Now, even those just a day late face a £100 fine, with £10 a day added to the penalty after three months, up to a maximum of £900.

HMRC will further fine £300 or 5 per cent of the tax due, whichever is more, when late forms pass the six-month and then the one-year mark. That means even those who don’t owe any tax could be fined more than £1,600 if their tax return is more than a year late.

And with the tax office now taking a more draconian approach to late returns, the number of people hit with hefty fines is expected to continue rising.

Neil Whyte, tax partner with accountants and business advisers PKF, said: “HMRC will catch as many of the unwary as the devious, resulting in much greater revenues for the Treasury without George Osborne having to visibly raise tax rates.”

HMRC is increasingly unprepared to overturn any penalties, according to Whyte, even where a late return is due to an innocent mistake.

“If the numbers are the same next year, the Treasury’s take will increase further as the new penalty rules mean that the standard £100 fine late filing will apply even if HMRC owes you a refund and, among others, there will also be a £10 a day penalty for continuing delays,” said Whyte. “This is easy money for HMRC and I think we will see a considerable increase in both the number of penalties being issued and their value.

“People must be aware that HMRC means business and will not tolerate late returns or late payments and they must get their paperwork in order to file and pay on time.”

The figures emerged as HMRC launched a tax amnesty aimed at tutors, coaches and instructors receiving cash-in-hand payments. HMRC said private tutors and coaches have until the end of March 2012 to come forward with details of outstanding tax for the year to April 2010. Those coming forward will receive favourable penalty terms likely to be no more than 20 per cent of the unpaid amount. But those who fail to come forward pay higher penalties or even face prosecution.

The new Tax Catch-up Plan follows similar campaigns aimed at plumbers, dentists and doctors as HMRC comes under growing pressure to raise more revenue.

Whyte said: “Even a relatively small amount of part-time earnings could put you on its radar. If you need to put things right, there is no doubt that this is a very good deal – you will have to pay up, but the bill will be hugely cheaper than the one HMRC will be sending you if it catches you cheating on your taxes.”