HMRC penalties double in six months

The value of penalties HMRC is imposing on taxpayers each month shot up in the last six months, following the lull in compliance activities during the first lockdown.

£41m was collected from penalties in November 2020, up 97% from the £21m that was collected in May. Penalties can be handed out to taxpayers for underpayment of tax or for submitting a tax return late.

HMRC paused much of its compliance and investigative work during the early months stages of the pandemic, resulting in a sharp reduction in penalties being handed out.

A large number of staff in HMRC’s compliance teams were temporarily reassigned to work on the furlough and coronavirus business interruption loan (CBILS) schemes during the early stage of the pandemic.

A recently published public accounts committee report on the department’s performance last year showed that during the height of the first wave of coronavirus, in May 2020, HMRC had reallocated more than 9,000 (16%) of its staff, while more than 6,000 HMRC staff were assigned to work on EU exit issues in 2019–20.

However, that is now changing and research shows HMRC has pivoted in recent months to investigating potential cases of fraud in the government’s pandemic support scheme schemes such as furlough and Eat Out to Help Out. In addition, HMRC is putting resource back on other core areas of tax investigation work.

HMRC’s own estimates show that up to £3.5bn may have been fraudulently claimed or paid in error from the furlough scheme alone. With the scheme being extended until April 2021, there is likely to be an increase in the number of businesses that are investigated for potentially-fraudulent furlough claims.

The huge amounts the Treasury has spent to try and stabilise the economy during the pandemic means that HMRC is going to come under huge under pressure to recoup as much tax revenue as possible.

HMRC will, therefore, be unlikely to go easy on individuals and businesses that they believe have underpaid tax. HMRC will be looking to make up for ground lost in 2020 – that means more investigations and more penalties are inevitable.

We offer a Fee Protection Service to our clients to safeguard against the cost of accountancy fees associated with a tax investigation. Contact us if you need advice.

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