Penalties From HMRC

 

Many people are concerned about penalties from HMRC.

All taxes have their own penalty regime, and we can’t cover them all here.

Currently fixed penalties for late returns are probably the biggest friction point, but these are changing to a points based system.

 

General Issues Around Penalties

These are the issues that can trigger penalties:

• Late submission of returns to HMRC
• Late payment of tax
• Late registration for a tax
• Failure to keep proper records
• Making errors and mistakes in your taxes

For the most part taking care and making returns and payments on time mitigates these.

In many instances penalties can be appealed, but thats time consuming and often not successful.  Likewise some penalties can be “suspended” but that needs looking at on a case by case basis.

The key thing here is to:

• Keep accurate records
• Make sure your returns are submitted on time
• Make sure tax is paid on time

Further down this page we look specifically at:

• Penalty Regime For Late Submissions Under Making Tax Digital Income Tax
• Penalty Regime For Late Payments Under Making Tax Digital Income Tax
• VAT Penalty Regime
• Corporation Tax Penalty Regime
• Companies House Penalties

 

Penalty Regime For Late Submissions Under Making Tax Digital Income Tax

Under Making Tax Digital for Income Tax Self Assessment (MTD ITSA), HMRC uses a points-based penalty system for late submission of returns. This replaces automatic fixed fines for each missed deadline.

This is being rolled out to all Self Assessment cases, MTD or not, from April 2027.

How the system works:

• A penalty point is given for each late submission (quarterly update or annual final declaration).
• No financial penalty is charged until a points threshold is reached.
  • Annual submissions – 2 points
  • Quarterly submissions – 4 points
  • Monthly submissions – 5 points
• Once the threshold is reached, a £200 penalty is issued.
• After that, each further late submission results in another £200 penalty while the taxpayer remains at the threshold.

How points expire:

• If the threshold is not reached, points normally expire after 24 months.
• Once the threshold has been reached and a penalty charged, points are reset by:
  • Bringing all submissions up to date, and
  • Filing all returns on time for a compliance period (usually 12 months for quarterly filers).

Penalty points and penalties will not be applied where the taxpayer has a valid reasonable excuse (for example serious illness or system failure).

Points and penalties can be appealed.

For taxpayers newly entering MTD ITSA from April 2026, HMRC has indicated a soft-landing period where penalties for late quarterly updates may be waived in the first year, although penalties for late annual final submissions will still apply.

 

Penalty Regime For Late Payments Under Making Tax Digital Income Tax

A separate penalty system exists for late payment of tax under the MTD ITSA programme, and, again, this is being rolled out to all taxpayer from April 2027.

Late payment penalties are charged if tax remains unpaid after the due date, and this applies to all liabilities including Payments on Account. Penalties are calculated by reference to how many days the payment is overdue:

• First penalty (15 days late) – if tax is still unpaid 15 days after the due date, a penalty of 3% of the outstanding tax is charged.
• Second penalty (30 days late) – if tax remains unpaid after 30 days, a further 3% of the outstanding tax is charged.
• Ongoing daily penalty (from day 31) – from day 31 onwards, an additional penalty accrues at 10% per year, charged on a daily basis until the tax is paid in full.

HMRC also separately charges late payment interest from the day after the payment due date until the tax is paid:

Late payment penalties and interest are normally waived if a payment plan is agreed with HMRC.

Reasonable excuse and appeals:

• Penalties may be cancelled if the taxpayer has a reasonable excuse for paying late (for example serious illness or unexpected events).
• Taxpayers have the right to appeal late payment penalties.

 

VAT Penalty Regime 

HMRC uses a points-based penalty system for late submission of VAT returns. This replaces automatic fines for each missed deadline.

How the system works:

• Each late VAT return earns a penalty point.
• No financial penalty is charged until a points threshold is reached:
  • Annual submissions – 2 points
  • Quarterly submissions – 4 points
  • Monthly submissions – 5 points
• Once the threshold is reached, a £200 penalty is issued.
• Each further late return after that results in another £200 penalty while the threshold remains active.
• If the threshold is not reached, points normally expire after 24 months.
• Once the threshold has been reached, points can only be cleared by:
  • Submitting all outstanding VAT returns, and
  • Filing all VAT returns on time for a compliance period (usually 12 months for quarterly filers).

Late payment penalties also apply when VAT is not paid by the due date.  This system is separate from the points-based penalties for late returns.

Penalties depend on how long the VAT remains unpaid after the due date:

• First penalty (15 days late) – if VAT is still unpaid after 15 days, a penalty of 2% of the outstanding VAT is charged.
• Second penalty (30 days late) – if VAT remains unpaid after 30 days, a further 2% of the outstanding VAT is charged.
• Ongoing daily penalty (from day 31) – from day 31 onwards, an additional penalty accrues at 4% per year, calculated daily until the VAT is paid in full.
• HMRC also charges late payment interest from the day after the due date until payment is made in full.

If a Time to Pay agreement is set up with HMRC before penalties arise, late payment penalties can be avoided or reduced.

Corporation Tax Penalty Regime

If a company files its Corporation Tax return (CT600) late, HMRC charges automatic penalties:

• 1 day late: £100 penalty.
• 3 months late: additional £100 penalty.
• 6 months late: HMRC estimates the tax bill and adds a penalty of 10% of the unpaid tax.
• 12 months late: a further 10% of the unpaid tax.
• If a company files late three times in a row, the £100 penalties increase to £500 each.

Corporation Tax is normally due 9 months and 1 day after the end of the accounting period:

• HMRC charges interest from the day after the due date until the tax is paid.
• There is no fixed late payment penalty for Corporation Tax, but interest can build up quickly.
• If tax remains unpaid, HMRC may take debt recovery action.

 

Companies House Penalties 

Late filing of annual accounts – Companies House charges automatic penalties if statutory accounts are filed late:

• Up to 1 month late: £150.
• 1 to 3 months late: £375.
• 3 to 6 months late: £750.
• More than 6 months late: £1,500.
• If accounts are filed late in two consecutive years, the penalty is doubled.

Late filing penalties apply even if the company is dormant, and failure to file accounts on time is also a criminal offence for company directors.

A Confirmation Statement (CS01) must be filed at least once every 12 months:

• There is no financial penalty.
• Failure to file can result in:
  • Strike off proceedings.
  • Directors facing prosecution.
  • Impact on Credit rating.