Between 2018 and 2022, HMRC charged 420,000 penalties to low-income earners who didn’t owe any tax and shouldn’t have needed to file a tax return in the first place.

But for some reason, they were required to file and because they didn’t file on time by the 31 October paper or 31 January online deadlines, they were hit with an automatic £100 penalty.

According to the Tax Policy Associates who obtained the data, for many of these people, the £100 penalty is more than half their weekly income.

The campaign group is now calling for a change to the law and practice to ensure no one filing late should be required to pay a penalty that exceeds the tax they owe.

It said that anyone who has a tax liability on income below the current £12,570 personal allowance shows a “policy failure” of which there were 184,000 in 2020/21 alone.

Moreover, TPA revealed a total of 660,000 penalties were issued to taxpayers in the lowest three income deciles (up to £6,000, £6k – £10k and £10k – £14k) with estimates that 600,000 were issued to people who owed no tax as their income was lower than the personal allowance.

And within this figure will be those people who received multiple penalties “which is an even larger policy failure, given that HMRC by this point know that the individuals involved earned too little to pay tax”, Dan Neidle of TPA said.

Tax victim forced into homelessness

Several years of penalties can add up to thousands of pounds and TPA said people are falling into debt. In one case, one person became homeless as a result of the penalties.

They said: “I missed the self-declare tax deadline, got fined the £100 late return, fell into mental health issues so did not reply. I now owe them over £1,000 even though I owed them £0 re my original tax evaluation as it was well under £13,000.”

The TPA said: “Even just the lowest penalty of £100 is a large proportion of the weekly income of someone on a low income – indeed over 100% of the weekly income for someone in the lowest income decile.”

An HMRC spokesperson, said: “The Government has recognised that taxpayers who occasionally miss the filing deadline should not face financial penalties, and has already announced reform of the system.

“Deadlines for returns are necessary for the efficient functioning of the tax system though, and we strongly encourage anyone who does not need to file a return to tell HMRC.

“Our aim is to support all taxpayers, regardless of income, to get their tax right and details of what to do if a person no longer needs to file a return are included in reminder letters every year.”

Appeal to HMRC

Taxpayers who believe they have incorrectly received a penalty can appeal directly with HMRC. HMRC will cancel penalties where taxpayers can provide a ‘reasonable excuse’ within 30 days of the penalty being issued, in which case no financial fine is actually levied.

There are 32 million individual taxpayers in the UK, with a record 11.4 million people submitting tax returns on time this year.