Tax experts have warned that “tens of thousands” of people could fall foul of penalties this year after tech issues left HMRC’s online filing system unable to properly reflect the recent changes to capital gains tax as implemented in Rachel Reeves’ first budget last year.
The chancellor’s Autumn Budget increased CGT rates on disposals of most assets, excluding residential property and carried interest, from 10 to 18 per cent for basic-rate taxpayers and 20 to 24 per cent for higher-rate taxpayers, effective from 30 October 2024.
But the update was finalised after HMRC’s digital return service had already been locked in for the tax year, the Financial Times reported.
That means anyone who sold shares or other assets after the change but relied on HMRC’s online system will find the calculations wrong, potentially leading to underpayment of tax.
The danger is most acute for individuals who file without the help of advisers.
David Wright, tech officer of the Association of Taxation Technicians, said mistakes were “inevitable,” noting that HMRC may impose interest charges – currently running at eight per cent – and fines of up to 30 per cent on underpaid CGT.
A wider digital overhaul
The slip comes at a time when HMRC and Companies House are already preparing for a major shake-up in the way businesses and individuals interact with government systems.
Their joint filing service, used to submit company accounts and tax returns, will be discontinued in March 2026, forcing firms to use third-party software as Whitehall moves to align with “modern digital standards” and new corporate transparency laws.
Officials argue the shift to fully digital filing will give businesses more flexibility, while strengthening the fight against economic crime.
This shift to fully digital filing could provide businesses with more flexibility, while also strengthening the fight against economic crime.
However, the CGT episode highlights how fragile the transition can be if HMRC’s systems fail to keep pace with legislative changes.
As the FT reported, this could result in under-reported taxes, late payment interests, and penalties of up to 30 per cent for individuals who rely on HMRC tech systems.
Political and fiscal backdrop
The misstep also contributes to the broader debate about Labour and Rachel Reeves’ tax strategy.
The Chancellor left herself just £9.9bn of fiscal headroom at the Spring Statement, the third-smallest buffer since 2010, leaving her under pressure to deliver revenue while sticking to her self-imposed fiscal rules.
She has already ruled out new wealth taxes, with ministers branding them “daft,” but has not shied away from tightening existing levies.
Last year’s CGT rise was accompanied by inheritance tax reforms, part of what critics call a stealthier strategy that broadens the tax base without the need for headline-grabbing new charges.
With the next Budget coming up, speculation is growing about further increases aimed at savers, investors and businesses.
What’s more, the HMRC software glitch risks undermining confidence in revenue administration, just as Reeves seeks to implement a more ambitious tax agenda.