MenuFleximize
Apply Now
Apply Now
HMRC penalties for self-employed workers - Fleximize

HMRC Penalties for Self-Employed Workers

Don't fall foul of HMRC - know who's responsible for paying tax.

By Kate Josselyn

In recent years, HMRC has tightened the rules around hiring workers on a self-employed basis. The goal is to reduce cases of "false self-employment," where workers may be paying less tax than they should.

Deliberate failure to pay tax

Self-employed workers are responsible for their own income tax and national insurance contributions (NICs). If they fail to pay, HMRC may demand payment of any taxes owed, along with interest. If the failure is judged by HMRC to be deliberate and without a reasonable excuse, a penalty, decided by HMRC and varying in amount from case to case, may also be applied. It could be in the range of 30-50% of the amount owed.

The burden is now on agencies

For agency work, the responsibility of determining a worker's status now falls on the agency. If an agency incorrectly classifies an employee as self-employed, HMRC will seek to recover any unpaid tax and NICs, and may apply penalties.

Under legislation introduced in 2014, agencies must keep records explaining why they haven't deducted income tax and NICs from workers' pay. If they believe the worker is not under supervision or control, they need to provide evidence. Without sufficient proof, HMRC may recover unpaid taxes, interest, and impose a self-employed tax penalty.

For example, under the Construction Industry Scheme (CIS), HMRC requires companies to keep records for at least three years. If they fail to produce these records, they can face fines of up to £3,000.

HMRC could monitor your business

If a company is found to be deliberately avoiding its tax responsibilities and hasn’t disclosed this behavior voluntarily, HMRC may start the Managing Serious Defaulters programme. This means HMRC will closely monitor the company's tax affairs for two to five years. During this time, the company cannot file abbreviated accounts. If they fail to show increased compliance, they could face unannounced visits from tax inspectors and scrutiny of both business and personal records. This could lead to a criminal or civil fraud investigation.

Tribunal decisions on self-employment

While employment tribunal decisions aren't legally binding for HMRC, both bodies use the same criteria to define self-employment. If a tribunal decides a contractor should be treated as an employee, HMRC is likely to follow that ruling regarding taxes. If HMRC learns of such a case, they will pursue unpaid tax and NICs.

Where to go for advice

You can ask your local Status Inspector about the employment status of your workers, and HMRC has its own interactive tool to advise businesses in all but the most complex cases. HMRC may also be able to provide you with a binding opinion of the employment status of your workers.

Your common questions answered

If you file your self-assessment tax return late, you may face HMRC penalties for late filing. This can include an initial fine of £100, with additional penalties if the return is more than three months late. If you receive a punishment for not declaring income UK, this may lead to further penalties.

HMRC can impose various penalties depending on the situation, including HMRC penalties for undeclared income, late payment, and failure to notify.

These penalties can vary in amount and severity. The HMRC penalties for late payment can include interest charges, which can add up quickly.

To get out of an HMRC penalty, you need to show a reasonable excuse for your failure. This can include situations like serious illness or a technical issue.

If you believe you have a good reason, you can submit an HMRC penalties appeal. If you're looking for an HMRC penalty appeal letter example, many resources are available online to guide you.

HMRC reviews self-assessment tax returns regularly. They may investigate if they find discrepancies or if they believe someone is self employed not paying tax. Regular audits and checks help ensure compliance.

HMRC may waive late filing penalties if you can provide a valid reason for filing late. You’ll need to present evidence when submitting your HMRC penalties appeal.

If you missed the self-assessment deadline, you should file as soon as possible. Late filing may result in HMRC penalties and interest on any unpaid tax.

Make sure to pay your taxes promptly to avoid additional penalties.

HMRC charges interest on late payments, calculated daily.

Additionally, there may be HMRC penalties for late payment that can increase over time. The HMRC penalties and interest can accumulate quickly if not addressed.

The amount of the HMRC penalty varies based on the type of failure and the amount owed. For example, late filing penalties start at £100.

If the late filing persists, additional penalties will apply.

Punishments from HMRC can include penalties, interest on unpaid taxes, and even criminal charges in serious cases of tax evasion.

Knowing the tax evasion penalties self-employed individuals face is crucial for avoiding these issues.

Yes, HMRC can remove penalties if you can prove you had a reasonable excuse for your failure to comply.

If you’ve received a HMRC penalty reference number, keep it handy for any correspondence.

For employers, failing to comply with PAYE regulations can lead to penalties.

These include fines for late payment of PAYE tax and NICs. HMRC penalties for PAYE can be significant, so it’s essential to ensure timely payments.

Yes, you can negotiate penalties with HMRC.

You can present your case if you believe you have a valid reason for your failure. This may include using an HMRC penalty appeal to explain your circumstances. If successful, you may see a HMRC penalty suspension or reduction.

Do you have a question that you can't see? Check out our FAQ page.