UHY Ross Brooke Chartered Accountants

£851m record high tax penalties

HMRC investigating company owners

The value of HMRC tax penalties has increased drastically in the last year. The harsh penalties are hitting businesses, putting financial pressure on individuals and businesses in the face of high interest rates and the looming threat of recession.

Publication featured in: CityAMInternational Tax ReviewBusiness Matters and Accountancy Today.

Our offices have found that the value of HMRC tax penalties has increased by 25% in the last year*, from £681m in 2021/22 to £851m in 2022/23 – the highest total value on record.

With HMRC currently chasing approximately £37bn** of outstanding tax debt, penalties are seen as something of an ‘easy win’ for the tax authority. Their value has risen consistently over the last three years.

Many of these fines are hitting businesses that are experiencing financial stress and struggling to pay on time. Others are being triggered due to simple errors in paperwork. David Jones, tax director in our Abingdon office claims: “a pattern over recent years has been HMRC’s aggressive view of what constitutes “deliberate behaviour” and their stubbornness around that issue. Of course, once characterized as deliberate behaviour, the penalty tariff rockets and that could be reflected in the high penalty figures. However, the recent case P Gopaul suggests the Courts are waking up to this – but you must be prepared to appeal and argue your case”.

The increase in penalties is heaping further financial pressure on individuals and businesses in the face of high interest rates and the looming threat of recession. Individuals and businesses should appeal as a significant number of fines are withdrawn when challenged.

Changes to VAT penalties introduced this year have made the regime fairer but have also expanded its scope. Penalties were extended to nil return and repayment returns, making them increasingly easy to trigger, sometimes through genuine errors. One business was fined £140,000 due to losing their HMRC account password, which caused their payment to be delayed.

Sean Glancy, partner in our London office claims: “HMRC continues to widen the net for tax penalties, so people who weren’t captured before are getting caught now. Penalties are an easy win for the Treasury, and they clearly rack up.”

“These penalties are extremely unhelpful as individuals and businesses continue their post-pandemic recovery. Many are still struggling to pay on time and if that continues or worsens, there will be more penalties. Others are being fined for very basic errors. People must pay extra attention to stay on the right side of the line.”

“HMRC is often not reasonable in removing penalties for genuine errors – they sometimes seem to operate with a ‘shoot first, ask questions later’ approach. Once a penalty is issued, the process is quite draconian, however about half of penalties are withdrawn on appeal.”

“Individuals and businesses who believe they have been wrongfully charged should seek professional advice to understand their rights and protect their financial interests.”

*HMRC data; year November 2022 to October 2023 and November 2021 to October 2022
**HMRC data; July to September 2023

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