"It was important to me that I proactively settled my affairs, as it was clear that failing to do so would result in significant fines, as the HMRC process does not allow for or accommodate any kind of relief when in custody. It would have been almost impossible for me to comply with my obligations to HMRC were it not for their help, and I can understand why so many of the men I meet bury their heads in the sand."
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RIFT Social Reform CIC, The Cobalt Building, 1600 Eureka Park, Lower Pemberton, Ashford, Kent, TN25 4BF
During our pilots and subsequent tax refund work we were able to identify that there were a significant number of prisoners who required our specialist support to help them resolve their HMRC-related issues. As part of a pilot at HMP Highpoint, we supported 23 men who had been self-employed prior to entering custody and who had been accruing penalties for late submission of their tax returns. The collective HMRC-related debt of these 23 residents was £35,676 which equated to an average of £1,551 per resident. As well as resolving these debts prior to release, we were also able to remove £4,335 in late filing penalties.
Across the three prison sites where we piloted our services in during 2018, 73% of those interviewed had significant HMRC-related debt/penalty issues, with an average of £2,800 of penalties per prisoner being identified and requiring resolution. The situation is simple: when people come into prison they presume that HMRC knows their circumstances and will therefore suspend all activity on their self-employment accounts for that time period. However, the reality is that HMRC does not know when someone has been sentenced to prison and will continue to charge penalties for late submission of tax returns, without realising that the person concerned is not in a position to pay.
Late submission of tax returns results in HMRC issuing financial penalties. These penalties continue to accrue during a prison sentence. The minimum fine for late submission of a tax return after 12 months is £1,600. For a prisoner who did not submit his or her tax return on time and who hasn’t addressed this for four years, this would amount to at least £6,400 of debt. A lot of prisoners do not even realise that they are accruing financial penalties, as HMRC has not contacted them in prison.
RIFT Social Enterprise has reviewed the range of employment support provisions available within prisons and identified a clear gap for bespoke tax advice. Aside from the generic finance, benefit and debt services that some prisons offer, there does not appear to be any other specialist HMRC/tax service that is offered to prisoners. Even the services that do exist sometimes revert to us for advice as the HMRC world is such a specialised one.
Since the start of 2018 we have supported over 160 prisoners via this service and have successfully appealed over £90k of penalties. We rely on external funding to be able to offer this service and our current funding stream expires at the end of 2021. We are therefore constantly seeking funding opportunities that will enable us to offer this service to a wider pool of beneficiaries and also to continue to provide the service from 2022 onwards.