HMRC has come under scrutiny for reportedly issuing approximately 600,000 late filing penalties to individuals who owe no income tax.

These fines, often amounting to more than £100 ($136), have been applied to low earners, including those who earn below the tax-free allowance but are still required to file a tax return.

From 2018 to 2023, Tax Policy Associates uncovered through a Freedom of Information request that numerous penalties were charged to the same individuals, some of whom faced serious health challenges, reported The Telegraph.

Dan Neidle from the think tank highlighted the impact on vulnerable members of society and urged the government to take action against these HMRC practices.

The data suggests that those with no tax liability are disproportionately affected by late penalties compared to other income groups.

Mistakes in the system may have led to fines for individuals earning less than the £1,000 trading allowance.

HMRC allows for appeals against incorrect penalties within 30 days of notice issuance and has cancelled about one-third of late submission penalties in the past three years.

Despite the introduction of a “simpler and fairer” points-based penalty system by the previous Conservative government, this new regime only applies to taxpayers enrolled in Making Tax Digital.

Low earners, who are not yet part of this digital initiative, remain subject to the old penalty system, potentially facing thousands of pounds in fines for late filing.

The Low Income Tax Reform Group (LITRG) has expressed concern over the creation of a “two-tier” system and has called for an accelerated rollout of the new penalty regime.

The Telegraph quoted Antonia Stokes from LITRG: “LITRG would like to see HMRC speed up its roll-out, so that all taxpayers can benefit from the new penalty regime.”

“If this is not possible, there are a series of tweaks HMRC could make to the existing regime that will bring it closer to its replacement, and mitigate some of these harshest effects.”

An HMRC spokesperson said: “Our aim is to help people to get their tax right and avoid fines altogether, and 11.5 million customers filed their 2023-24 tax return on time. If you no longer need to file a tax return, including because your earnings are lower, check using our online tool and then tell us to avoid a penalty.

“Those who believe they’ve incorrectly received a penalty for filing late can appeal. We can cancel penalties when a reasonable excuse is provided.”