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HMRC penalties to taxpayers rise by 22% in past year

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Over the last year, the risks arising from an HMRC investigation into self-assessment tax returns have substantially increased, as have the penalties that HMRC issued to people who failed to pay the right amount of tax. The total value of penalties issued by HMRC rose by 22%, from £684m in 2021/22 to £833m in 2022/23*.

This potentially makes a tax investigation all the more painful for those who make errors in their tax returns and payments.

HMRC issue penalties to taxpayers when they underpay or fail to pay tax, or if they don’t file their tax return on time. If an error within a tax return is deemed to have been deliberate and concealed (for example, by making a false statement to HMRC), taxpayers could be subject to a penalty as high as 100% of the tax due.

However, even if the error is made completely accidentally but as a result of what HMRC see as a lack of reasonable care, penalties can still be as high as 30% of the tax due.

But the penalties aren’t the only problem. A tax investigation can be a very long-drawn-out and expensive affair, with severe repercussions if an individual fails to pay the right amount of tax.

Adding to concerns, the risk of being subject to an HMRC investigation has also increased over the last twelve months. There was a 13% rise in tax investigations into sole traders and small businesses over the last year, from 265,000 in 2021/22 to 299,000 in 2022/23.

The tax authority is likely to at least sustain the current pace of investigations as the Government is in need of extra funds to finance its growing deficit. So much so that HMRC fined 180,000 people for not filing a tax return in the 2020/21 tax year, even though they had no tax to pay at all!

Professional advice can help during an HMRC investigation and to determine precisely how much tax is owed, if any. This is particularly important as any individual who fails to notify HMRC of any errors before these are identified would incur a bigger penalty.

We offer our clients the opportunity to protect themselves against the cost of most tax investigations by subscribing to our Tax Enquiry Protection Service. To find out more, call 0330 024 0888 or email

*Year-end is August 2023.

**Year-end is June 2023. Figures rounded up to nearest 1,000.

Sally Farrow


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Larking Gowen


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