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HMRC penalties hit £816m in 2019

This new figure is a 32% increase on that of 3 years ago.

Rising penalties are a clear statement of intent from HMRC and show its working methods for investigating taxpayers are improving all the time. A taxpayer could face a penalty if their return or other tax document was inaccurate and tax has been unpaid, understated, over-claimed or under-assessed as a result. 

At the time, the £620m in penalties imposed on taxpayers in 2015/16 looked aggressive but that pales in comparison to last year. HMRC is clearly not afraid of taking action in any case where it believes there is the grounds to impose a penalty.

 Collection from penalties is actually rising faster than total tax receipts, which increased 19% to £590bn, up from £495bn over the same three-year period. If taxpayers are investigated and HMRC finds evidence of wrongdoing then they may be hit with even larger penalties. Seeking professional advice during an investigation can help you structure your evidence and fend off enquiries.

 So why are penalties rising so fast? HMRC has unprecedented access to data on taxpayers which it plugs into state of the art computer programmes. These programmes build a detailed picture of a taxpayer’s life, which enable HMRC to accurately estimate how much tax that person should be paying. This is then cross-referenced with receipts.

 Sophisticated data-driven computer modelling allows HMRC to quickly and cheaply identify cases to investigate. The identification of cases for investigation is moving onto a mass scale.

As some taxpayers may have seen, the latest manifestation of HMRC’s data gathering is “cyber stalking” taxpayers on social media and other platforms online.

 It is perhaps worth taxpayers knowing how HMRC calculates penalties, as being armed with this information may be helpful if you are ever faced with one. The process is typically as follows: 

  • Firstly, HMRC assesses whether the inaccuracy or late payment was the result of a taxpayer being careless or deliberate. This categorization provides the penalty range – 0%-30% for careless and 30%-70% for deliberate. The mid-point is usually taken
  • Then HMRC reduces the rate in cases where a taxpayer has helped with identifying the inaccuracy or late payment. Deductions depend on how much help was provided 
  • Finally, the penalty rate is multiped by the amount of tax in question

HMRC continues to target certain taxpayer groups with penalties more than others. For example, penalties imposed in relation to mistakes on tax returns have dropped significantly in recent years whilst those related to offshore interests have nearly doubled.

Data from HMRC shows penalties related to tax returns fell to £21m in 2017/18 from £64m in 2015/16. Meanwhile, HMRC’s Offshore Corporate & Wealthy unit raked in £560m in 2018/19, up from £325m in 2016/17.