How HMRC’s Penalty System Hits the Poor Hardest
When it comes to tax, we’re constantly told the system is fair. But fairness only works when it’s felt across the board. Dan Neidle’s recent article published on 6th July 2025 on Tax Policy Associates, lays bare a striking truth: HMRC’s late filing penalties disproportionately punish those who can least afford it.
In his analysis, Neidle highlights that over half of HMRC’s self-assessment late filing penalties are levied on people earning less than £13,000 a year. Even more shocking, 35% of those penalised earn under £6,000. That’s not tax avoidance. That’s poverty and a system seemingly designed to profit from it.
How Did We Get Here?
The late filing penalty regime, especially for self-assessment, is automatic, rigid, and blind to context. Miss the 31th January deadline and you’re hit with an immediate £100 fine. The fines escalate quickly thereafter, regardless of whether any tax is owed.
If you’re elderly, digitally excluded, self-employed on a shoestring, or simply overwhelmed, the system doesn’t care. It penalises anyway.
Worse still, many of these low-income individuals end up owing no tax at all. Their only crime? Missing paperwork deadlines imposed by an institution with vast resources, expertise, and one would hope, a degree of discretion.
The Human Cost
Neidle rightly points out that while the wealthiest have accountants and advisers shielding them from such bureaucratic traps, those at the bottom don’t. For them, a £100 fine isn’t just a warning shot; it’s a serious financial burden.
Tax compliance matters. But so does proportionality. A civilised tax system should distinguish between genuine evasion and simple error or hardship. HMRC has the data and the discretion to exercise compassion. So why isn’t it?
Fixing the System
HMRC defends the penalty regime on the grounds of deterrence. But what exactly are we deterring?
The data shows we’re mostly punishing people who aren’t hiding money, they’re struggling to earn it. Deterrence doesn’t work when the person you’re trying to deter is already fighting to stay afloat.
One solution, as Neidle suggests, is a fairer, income-based approach to penalties. Another would be greater use of discretion, especially for first-time offenders or those demonstrably earning below a certain threshold. Better public education and simplified filing processes would also make a difference.
Final Thoughts
As an adviser working with clients of all sizes, I’ve seen both sides of the system. I know how hard it is to comply with complexity, especially when you don’t have a finance team behind you.
It’s time we acknowledged that our current penalty regime isn’t just flawed but it’s fundamentally unjust.
We should all care about a tax system that’s efficient, fair, and proportionate. Right now, we’re falling short. HMRC must do better, and we – as advisers, business owners, and taxpayers, must keep pushing for reform.
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