Tax returns: HMRC fines set to jump as Treasury pushes for ‘easy wins’
HMRC is gearing up to hike fines for the late filing of VAT and self-assessment after the Treasury outlined a new push against tax evaders in the Spring Statement.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, noted that while tax return is never a favourite job, it could be even more painful for future finances if not organised.
In her Spring Statement, Rachel Reeves announced plans to raise over £1bn in additional gross tax revenue over the coming years.
As part of the plans, the government will continue the roll-out of making tax digital (MTD) for income tax self-assessment (ITSA), with sole traders and landlords with qualifying income over £20,000 joining from April 2028.
However, the Treasury said late payment penalties for Value Added Tax (VAT) and ITSA taxpayers will increase as they join MTD from April 2025 onwards.
The new rates will be three per cent of the tax outstanding where tax is overdue by 15 days, plus three per cent where tax is overdue by 30 days, plus 10 per cent per annum where tax is overdue by 31 days or more.
The increase is expected to bring in £105m over 2028-29 and £125m over 2029-30.
Streeter said the government “is scouting for easy wins to fill its coffers more effectively and has set its sights on the self-employed who use the platform MTD to file their returns.”
She warned that “it’s an administrative burden which will really pay to be on top of” adding “starting early will mean there is less panic over paperwork”.
On top of the increased fines, the Chancellor set out plans to increase the number of tax fraudsters charged each year.
The number of annual charging decisions for the most harmful fraud will increase by 20 per cent, compared to current levels, from 500 to 600 per year by 2029-30.
Adam Craggs, partner at RPC, noted that “these developments suggest a greater number of taxpayers could find themselves subject to HMRC’s criminal powers”.
Kate Ison, partner at law firm BCLP, added, “There has been a significant increase in the tax gap attributable to small businesses, so for HMRC to make serious inroads, it is going to have to focus on some pretty marginal cases.”
“HMRC has been known to bring prosecutions for trivial amounts of tax.”
“There hasn’t been a single prosecution in eight years for the corporate criminal offence of failure to prevent facilitating tax evasion. While it is a difficult threshold to meet, this suggests that HMRC is struggling to use all the tools at its disposal,” she added.
Andrew Parkes, national technical director at Andersen added it “remains to be seen whether these prosecutions will be of major players or easy targets to ensure the targets are met.”