A quarter of a million extra taxpayers risk being hit by fines and late payment penalties following the Government’s latest raid on capital gains and dividends.
The capital gains allowance halved in April from £12,300 to £6,000, and will do so again to £3,000 from April 2024. At the same time, the dividend allowance dropped from £2,000 to £1,000, and will also halve again to £500 next year.
It means thousands of taxpayers will need to fill in a self-assessment form for the first time ever. This will result in an extra 240,000 taxpayers with a late filing penalty next year, a report by the stockbroker AJ Bell has warned.
More than a million people had to pay extra interest on late tax in the 2019-20 and 2020-21 tax years, a Freedom of Information request by AJ Bell found. Based on this proportion of late payers, an extra 240,000 would be expected to receive penalties once tax thresholds are lowered.
Laura Suter, of the broker, said around one in 10 people expected to file a tax return were asked to pay interest on their late payments.
“With the tax-free allowance on capital gains and dividend taxes being dramatically cut in the next year, more people will have to file a tax return for the first time in their lives,” she said.
“On top of that, those who earn more than £100,000 must file a return, as well as those who have hit the child benefit high-income charge and people who have other sources of income from their main job.”
Ms Suter added that some would struggle to complete the return or even realise that they had to fill one in. “This represents a huge cash cow for the Government, who whack fees and charges on top of the tax owed,” she said.
Last week, HM Revenue & Customs (HMRC) increased its late tax payment charge to 6pc. Meanwhile, those owed money by the taxman are paid a rate of just 3.5pc on their money. The gap is because of a rule that allows HMRC to charge 2.5 percentage points above the Bank Rate, and pay 1 percentage point below it to a minimum of 0.5pc.
Anyone can be hit with a late filing penalty if they miss the deadline for filing their tax return or paying their bill. If your tax return is one day late, HMRC charges a penalty of £100.
Once you are more than three months late, it charges £10 per day up to a maximum of 90 days. This continues to rise to a maximum of £300 or 5pc of the total tax due, whichever is higher.
These penalties are on top of late payment interest charges.
Ms Suter noted that some taxpayers can get these fees waived, but only if they meet a specific list of excuses from the taxman. “Simply not knowing that you needed to file a return or not understanding how to do it is not enough.
“You only get a refund if you have things like illness or a relative’s death that prevented you from filing, or your computer breaking when you were sending your return,” she said.
HMRC was approached for comment.