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HMRC penalties jump 28% in past year

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After a period of tolerance due to the pandemic, officials are clamping down harder on tax avoidance and HMRC is beginning to show less forbearance for late payments. 

Penalties imposed by HMRC on taxpayers have jumped 28% from £445m to £571m in the past year, according to official data*.

HMRC increasing the clampdown on tax avoidance is part of its efforts to make up for revenue lost during the pandemic.

As well as a drop in tax take caused by the slowdown of the economy during COVID, the Government also invested heavily in programmes like furlough to help the economy through the lockdown.

According to the Public Accounts Committee, the Government has lost at least £15bn in tax-related fraud and error due to COVID. An increase in the number of tax investigations being opened by HMRC is inevitably leading to more penalties.

Until recently, HMRC had been exercising a considerable degree of forbearance towards individuals falling behind on their tax affairs. However, the end of the pandemic has led to a noticeable shift as HMRC returns to business as usual.

One other way HMRC could boost its income is by moving taxpayers that have made a mistake with their tax returns from one category of penalties to a harsher category. For example, HMRC has some leeway to decide whether an individual should face a penalty for failing to take ‘reasonable care’ or a bigger penalty for making a ‘deliberate’ error. HMRC calculates the severity of its penalties using the following categories:

  • If a penalty arises due to a lack of reasonable care, the penalty will be between 0% and 30% of the unpaid tax due
  • If an error is deliberate, the penalty will be between 20% and 70% of the unpaid tax due
  • If an error is deliberate and concealed, the penalty will be between 30% and 100% of the unpaid tax due

Taxpayers will start to see their tax affairs even more heavily scrutinised as the number of in-person visits and property searches return to pre-pandemic levels.

The huge spike in penalties shows HMRC is ramping up pressure on taxpayers in arrears. While HMRC itself is under a lot of pressure to fill the hole in the country’s finances due to the pandemic, it is becoming more aggressive in going after undeclared taxes. It is likely the number of tax investigations will rise as a result.

To prepare for what can very easily be a resource-draining investigation, businesses and individuals should ensure they have subscribed to BHP’s fee protection service to safeguard against the major impact an investigation can have.

To find out more and subscribe to our fee protection service, email or visit tax-investigations (

*HMRC Data year-end April 2021 to April 2022