400,000 people have been penalised for a tax mistake when most of them don't owe any tax. Tax Policy Associates says the fines can mount up to thousands of pounds.
Nearly 12 million self-employed people fill out self-assessment tax returns each year, but Tax Policy Associates found that nearly 400,000 people earning less than £13,000 received a penalty for not filing a tax return on time between 2018 and 2020.
The low earnings mean most of them did not have to pay tax - but they automatically got a fine of £100 for not filing a tax return, reports the BBC.
Penalties could mount up to £1,600 by the end of the year. People can appeal, but may also pay unaware that they don't have to.
Tax Policy Associates founder Dan Neidle said: "I don't think it's right to have a system which puts the onus on people in low income to fill out forms for HMRC to avoid penalties.
"What should happen is that if you're late filing, and then it turns out you have no tax to pay, your penalty should be cancelled. That is how it used to work many years ago and I think that's how it should work."
HMRC said automatic penalties "are necessary for the efficient functioning of HMRC as it means public services can be funded on time". A spokesperson said: "We are reforming penalties so taxpayers who occasionally miss the filing deadline will not face financial penalties."
