HMRC issues penalties for:
- Late payment of Self Assessment tax, VAT, and Corporation Tax
- Late filing of returns
- Mistakes on your tax return
You can also be charged interest on late payment if you miss your tax bill deadline.
Changes to Late Payment Penalties (Effective 1 April 2025)
Here’s how much the penalties have changed:
| Payment Timing | Previous Penalty | Current Penalty (From 1 April 2025) |
|---|---|---|
| Within 15 days | No penalty | No penalty |
| 16–30 days late | 2% of tax owed at day 15 | 3% of tax owed at day 15 |
| 31+ days late | 2% at day 15 + 2% at day 30 + daily 4%/year | 3% at day 15 + 3% at day 30 + daily 10%/year |
Why Might You Get an HMRC Penalty?
Common reasons include:
- Inaccuracies or errors on your return
- Filing a late tax return
- Paying your tax bill late
- Failing to keep proper records
Avoiding HMRC Penalties
- Register for Self Assessment by 5 October
- File your return:
- Paper: by 31 October
- Online: by 31 January
- Pay your bill: by 31 January
- You can set up a payment plan, but you’ll be charged interest.
Key Types of HMRC Penalties
Late Filing Penalty (Self-Assessment)
| How Late? | Penalty |
|---|---|
| 1 day | £100 |
| 3 months | £10/day up to 90 days (max £900) + £100 initial fine |
| 6 months | Higher of £300 or 5% of tax due + all previous penalties |
| 12 months | Additional £300 or 5% of tax due (up to 100% in serious cases) |
HMRC moved to a points-based system for VAT from April 2023. This will apply to Self Assessment from April 2026 or 2027 depending on your income.
Late Payment Interest and Penalties (Self Assessment)
Penalties apply if you pay late. You can estimate your penalty using the HMRC late payment penalty calculator.
New penalties apply for users of Making Tax Digital, but you won’t be fined until your records are migrated and you’ve tested the new system.
Corporation Tax: Companies House Late Filing Penalties
| How Late? | Penalty |
|---|---|
| 1 day | £100 |
| 3 months | Additional £100 |
| 6 months | Estimated tax + 10% of unpaid tax |
| 12 months | Additional 10% of unpaid tax |
VAT Late Payment Penalty (From 1 April 2025)
| Overdue Days | Penalty Details |
|---|---|
| 15–30 days | First late payment penalty: 3% of VAT owed at day 15 |
| 31+ days | Second penalty: 3% of VAT owed at day 30 + daily 10%/year interest |
If you’re struggling to pay, consider using HMRC’s Time to Pay service.
HMRC Penalties for Undeclared Income
This is known as a ‘failure to notify’ penalty. Examples include:
- Not declaring a new source of income
- Failing to report a capital gain from selling an asset
Penalties depend on the unpaid tax. You may reduce the penalty by informing HMRC voluntarily.
HMRC Penalties for Inaccuracies
If you make a mistake, you can amend your return within the correction window. Penalties apply for:
- Careless errors
- Deliberate concealment
Using an HMRC Penalty Calculator
You can estimate your penalty for late filing or payment using HMRC’s penalty calculator.
Reasonable Excuses for Filing Late
You may appeal a penalty if you had a valid reason. HMRC accepts:
- Bereavement of a close relative
- Serious or life-threatening illness
- Software or system failure near the deadline
- HMRC technical issues
- Fire, flood, or theft
- Disability-related delays
Each case is reviewed individually. Evidence of reasonable care is required.
How to Appeal an HMRC Penalty
Self Assessment
- File your return or declare you don’t need to.
- Appeal via the online portal (for penalties from 2016–17 onward)
- For earlier years or postal appeals, use form SA370
Corporation Tax or VAT
- Use your HMRC online account
- Specific forms are available for reasons such as software failure
PAYE Penalties
- Appeal through the PAYE for Employers portal on HMRC’s website.
What Happens After You Appeal?
- An independent HMRC officer reviews your appeal.
- For VAT or excise duty, you can appeal to the Tax Tribunal.
- If you disagree with HMRC’s decision, you can take it further:
Options:
- Request a review by HMRC
- Appeal to the Tax Tribunal
- Apply for Alternative Dispute Resolution (ADR) if communication has broken down
Alternative Dispute Resolution (ADR)
ADR uses an impartial mediator to help resolve disputes with HMRC. It’s useful when:
- You dispute the facts
- Communication with HMRC has broken down
Note: ADR is not available for fixed penalties or payment deadline disputes.
Article Courtesy: Simply Business
