HMRC adds Insult to Injury with New Penalty System on top of Increased Bureaucracy

HMRCThe HMRC’s Make Tax Digital (PDF) Scheme immediately came under fire when it was announced. It is the government’s way of keeping closer tabs on self-employed people and small businesses.

Most companies and individual self-employed people, including WAHMs, who have an income of more than £10,000 will soon have to file HMRC quarterly tax returns online. This on its own has been criticised as adding more administrative stress and increased bureaucracy for the self-employed, and now the HMRC has announced a further penalty system.

A new penalty regime which has been described as both draconian and a nightmare by tax experts has been planned to come into force in 2019. The penalties will relate to anybody who is late providing the HMRC with information about their tax affairs and has a tiered penalty point formula, much like the motoring penalty points system.

The new system will result in self-employed people receiving an automatic fine after picking up four points for four ‘offences’ and this could be as much as £100. Every further point after the initial four will then result in further fines and the number of points is only reset to zero after a two-year period of all information being submitted on time. The upshot of this is that small business owners including work at home mums and dads may face hundreds of pounds’ worth of fines, if they fail to file their tax return on time. The current system as a single automatic penalty of £100.

HMRC increases Administrative Burden of Self-Employment

Many work at home mums and dads are wholly responsible for their own accounting and it is just one of many things they have to balance the run their business. The additional stress that comes with knowing about the deluge of fines that are possible if a single day late can be enough to mean some businesspeople no longer see the point in trading. It has been suggested that retired people who run small businesses may give up due to these new measures and this could equally be said of new mums and dads looking to get a business off the ground whilst caring for young children.

Although the HMRC has said all those earning less than £10,000 will not have to make quarterly returns and keep digital records, the administrative burden is still high for all people above this barrier.

The financial management side of self-employment is not most people’s favourite area. The HMRC claim to be attempting to make it easier with their move online but in practice it seems to be the opposite. The risk of higher fines and more penalties could be enough to drive people out of business or at least leave them worrying about their next move. It can also mean a significant increase in accounting fees for work at home parents relying on accountants for their tax affairs.