HMRC increases tax penalty intake by 25%

It is well known that taxes in the UK are not cheap. However, if you seek professional advice in advance to plan a reasonable tax bill, you still have the opportunity to reduce some of the costs. In recent years, His Majesty’s Revenue and Customs (HMRC) has ramped up tax investigations, targeting both businesses and individuals suspected of non-compliance with tax regulations.

So, what’s been happening, and why has there been such a sharp increase in penalties?

Let’s explore.

1. Investigations

One of the key trends in recent times has been the heightened scrutiny of high-profit companies and small to medium-sized enterprises (SMEs).

HMRC investigations into these groups have surged by 60%, making them the primary focus of enforcement efforts. Smaller businesses and individual taxpayers haven’t been spared either, with investigations in this category increasing by 22%. Even large corporations have faced increased attention, seeing a 17% rise in cases.

During the 2021/22 fiscal year, HMRC significantly expanded its specialist tax investigation teams, adding over 3,000 new staff to the compliance and audit departments. This bolstered workforce enabled a more rigorous and widespread approach to identifying and penalising errors.

A substantial number of businesses were fined for mistakes in their paperwork, with particular emphasis placed on Value-Added Tax (VAT) penalties, which have been extended in scope this year. Even businesses filing zero returns or requesting refunds can face penalties if they delay the submission of accurate VAT data.

2. A new record for penalties

HMRC’s collection of penalties has reached its highest level on record, with a 25% increase leading to £851 million collected.

This is part of a broader trend of rising fines over the past three years, contributing to an estimated £37 billion in unpaid tax debt.

Despite these results, HMRC has faced criticism for being overly severe in issuing fines for what are sometimes genuine errors. The authority’s approach, often described as ‘shoot first, ask questions later’, has left many businesses and individuals feeling frustrated.

The penalty process, once initiated, is stringent, although it’s worth noting that around 50% of fines are overturned on appeal.

In defence of their actions, an HMRC spokesperson explained that the goal is to ensure taxpayers meet their obligations – ‘[we] are committed to helping customers pay the taxes they owe on time. We impose penalties to encourage compliance and to sanction those who fail to meet their obligations. If customers are unable to pay on time, they can contact us to discuss their options’.

For taxpayers – whether individuals or businesses – who owe less than £30,000, there is the possibility of arranging a payment plan, allowing them to pay off outstanding debt in manageable instalments.

3. Global tax auditing trends and digital compliance

While HMRC intensifies its tax audits within the UK, over 80 other countries are embracing digital solutions such as electronic invoicing or continuous transaction controls (CTCs).

These technologies enable tax authorities to monitor business transactions in real time, ensuring greater transparency and compliance in tax systems around the world.

This global move towards digital tax compliance underscores the importance of businesses remaining vigilant and up to date with their tax obligations as the era of manual processes rapidly becomes a thing of the past.

As HMRC continues its stringent enforcement measures, it is clear that the focus is on encouraging tax compliance and reducing tax debt, even if that means more aggressive measures and penalties for non-compliance.In recent years, His Majesty’s Revenue and Customs (HMRC) has ramped up tax investigations, targeting both businesses and individuals suspected of non-compliance with tax regulations.