HMRC Tax Penalties: Late Filing, Late Payment, and Appeals

HMRC tax penalties fall into four main groups: charges for filing a return late, charges for paying tax late, charges for getting the figures wrong, and charges for not telling HMRC about a new source of taxable income. They start at a flat £100 for a late Self Assessment return and reach 100% of the tax owed for deliberate concealment, with a further 7.75% annual interest running on any unpaid balance on top. Most penalties can be appealed, and several can be reduced or cancelled outright if you act quickly or had a genuine reason for the failure.

Penalties for Filing a Return Late

Self Assessment

Miss the Self Assessment filing deadline and a £100 penalty is charged automatically the next day, whether or not you owe any tax.1Legislation.gov.uk. Finance Act 2009 – Schedule 55 After that, the charges escalate on a fixed schedule:

  • Three months late: £10 per day for up to 90 days, capped at £900.
  • Six months late: a further 5% of the tax due or £300, whichever is greater.
  • Twelve months late: another 5% of the tax due or £300, whichever is greater.

Those are the standard twelve-month figures. If HMRC concludes you deliberately withheld information by not filing, the twelve-month penalty rises to as much as 70% of the tax liability, or 100% if you also took steps to conceal the failure.2GOV.UK. HMRC Compliance Handbook – Penalties for Failure to File Returns on Time: Higher 12 Month Penalties Offshore matters can push that ceiling to 200%.

VAT

VAT returns work on a different system for accounting periods starting on or after 1 January 2023. Each late return gets you one penalty point rather than an immediate charge. You only pay when you hit the threshold for your filing frequency: two points for annual returns, four for quarterly, five for monthly.3GOV.UK. Penalty Points and Penalties if You Submit Your VAT Return Late Once you reach the threshold, HMRC charges £200 for that late return and £200 for every subsequent late return while you remain at the threshold.

Penalties for Paying Tax Late

Late filing and late payment are separate offences, so you can be charged for both at once.

Self Assessment

Late payment penalties under Schedule 56 of the Finance Act 2009 follow their own timeline:4Legislation.gov.uk. Finance Act 2009 – Schedule 56

  • 30 days overdue: 5% of the unpaid tax.
  • Six months overdue: a further 5% of what is still outstanding.
  • Twelve months overdue: another 5% of the remaining balance.

A taxpayer who owes £10,000 and pays nothing for a full year picks up £1,500 in late payment penalties alone, plus interest for the whole period. Because each 5% is calculated on what remains at that milestone, partial payments do reduce the charge.

If you know you cannot pay in full, contact HMRC and ask for a Time to Pay arrangement before penalties start accruing. Once an arrangement is agreed, HMRC will not charge further late payment penalties on the amounts covered, provided you stick to the schedule.5GOV.UK. Debt Management and Banking Manual – Time to Pay and Penalties Break the arrangement and penalties can be reinstated as if it never existed.

VAT

Late VAT payments work on a two-stage model tied to how overdue the payment is:6GOV.UK. How Late Payment Penalties Work if You Pay VAT Late

  • Up to 15 days overdue: no penalty.
  • 16 to 30 days overdue: a first penalty of 2% on the VAT owed at day 15.
  • 31 or more days overdue: 2% of the balance at day 15 plus 2% of what is still outstanding at day 30, then a second penalty accruing at a daily rate of 4% per year on the remaining balance until it is paid.

The 15-day grace period means a payment that is a few days late attracts no penalty at all.

PAYE

Employers who pay PAYE and National Insurance late face a defaults-based charge. The first late payment in a tax year does not count as a default, but every one after that does, and the percentage applied depends on how many have built up:7GOV.UK. Late Payment Penalties for PAYE and National Insurance

  • 1 to 3 defaults: 1% of the late amount
  • 4 to 6 defaults: 2%
  • 7 to 9 defaults: 3%
  • 10 or more defaults: 4%

On top of those percentages, a further 5% penalty applies to any amount still unpaid after six months, and another 5% after twelve months. Those extra charges apply even if only one payment in the tax year was late.

Penalties for Inaccurate Returns

When a return understates the tax owed, HMRC’s response depends on why the mistake happened. Schedule 24 of the Finance Act 2007 divides inaccuracies into three categories, each with its own maximum penalty as a percentage of the tax understated:8Legislation.gov.uk. Finance Act 2007 – Schedule 24

  • Careless (failure to take reasonable care): up to 30% of the lost tax.
  • Deliberate but not concealed: up to 70%.
  • Deliberate and concealed: up to 100%.

An honest mistake made despite taking reasonable care carries no penalty at all. Most disputes turn on the line between reasonable care and carelessness. HMRC asks what a reasonable taxpayer in your position would have done: kept proper records, checked figures against source documents, asked for help with anything unclear.

Disclosure Reductions

The actual penalty within each range depends on how and when you disclose the error. An unprompted disclosure, made before you have any reason to think HMRC is about to find the mistake, earns the biggest reductions. A prompted disclosure, made after HMRC has started asking questions, earns less.8Legislation.gov.uk. Finance Act 2007 – Schedule 24

HMRC then scores the quality of your disclosure across three areas: telling them about the error, helping them work out how much tax was underpaid, and giving access to records so they can verify the figures. Full cooperation across all three brings the penalty down to the minimum for your category:

  • Careless: 0% (unprompted) or 15% (prompted)
  • Deliberate but not concealed: 20% (unprompted) or 35% (prompted)
  • Deliberate and concealed: 30% (unprompted) or 50% (prompted)

Suspended Penalties

If the penalty is for a careless inaccuracy, HMRC can agree to suspend all or part of it for up to two years.9GOV.UK. Compliance Checks: Suspending Penalties for Careless Inaccuracies in Returns or Documents Suspension comes with conditions aimed at preventing the same mistake, such as new record-keeping procedures or training. Meet the conditions and file accurate returns throughout, and the penalty is cancelled. Breach them, or pick up another inaccuracy penalty during the period, and you pay the original in full. Suspension is not available for deliberate inaccuracies.

Offshore Matters

Inaccuracies involving offshore income or assets carry higher maximum penalties. The ceiling depends on how readily the relevant country exchanges tax information with the UK; where information-sharing is limited, the maximum can reach 150% or 200% of the lost tax.2GOV.UK. HMRC Compliance Handbook – Penalties for Failure to File Returns on Time: Higher 12 Month Penalties

Penalties for Not Telling HMRC About New Income

If you start receiving taxable income that HMRC does not know about, you have to notify them. For income tax and capital gains tax, that notification must happen within six months of the end of the tax year in question. A failure triggers a separate regime under Schedule 41 of the Finance Act 2008, charged as a percentage of the tax that went unpaid:10GOV.UK. Compliance Checks: Penalties for Failure to Notify – CC/FS11

  • Non-deliberate (unprompted, within 12 months): 0% to 30%
  • Deliberate (unprompted): 20% to 70%
  • Deliberate and concealed (unprompted): 30% to 100%

A prompted disclosure pushes the floor higher in each range. A non-deliberate failure with a genuine reasonable excuse carries no penalty.

Interest on Top of Penalties

Interest runs separately from every penalty above. From 9 January 2026, HMRC charges 7.75% per year on any outstanding balance, covering income tax, capital gains tax, corporation tax, inheritance tax, VAT, and most other duties.11GOV.UK. HMRC Interest Rates for Late and Early Payments Interest accrues daily from the date the tax was due until the date it is paid, and it runs whether or not you are also being charged penalties. The rate tracks the Bank of England base rate plus a margin, so it moves over time. Paying what you can early, even partially, reduces the interest charge.

When a Reasonable Excuse Cancels the Penalty

A reasonable excuse can get a penalty cancelled outright, but HMRC applies the concept more narrowly than most people expect. The excuse must relate to something genuinely outside your control that stopped you meeting the deadline, and you must have dealt with the problem without unreasonable delay once the obstacle was removed.

Circumstances HMRC normally accepts include:12GOV.UK. HMRC Compliance Handbook – Examples of Reasonable Excuse

  • The death of a partner or close relative that affected your ability to deal with tax affairs at the time.
  • An unexpected serious illness or hospital stay.
  • Loss of records through fire, flood, theft, or computer failure, where replacements could not be obtained in time.
  • HMRC system failures, or activation codes arriving too late despite a timely application.
  • Post that was sent in good time but lost or delayed by the postal service.

What will not work: forgetting the deadline, finding the system confusing, or not having the money to pay. Cash flow problems are not a reasonable excuse, though they may support a Time to Pay arrangement instead.

Handing your tax affairs to an accountant does not automatically give you a reasonable excuse if things go wrong. If your adviser was simply administering the paperwork and filed late, that is treated as your own failure; you were expected to set deadlines and chase progress.13GOV.UK. HMRC Compliance Handbook – Reasonable Excuse: Reliance on Another Person If, on the other hand, a qualified professional gave you specific advice on a tax question and you relied on it in good faith after providing all the relevant information, that reliance will usually count as reasonable care.

How to Appeal

You have 30 days from the date on the penalty notice to appeal.14GOV.UK. Disagree With a Tax Decision or Penalty For Self Assessment, appeal online or post form SA370 for late filing or SA371 for late payment. For other taxes, follow the instructions on the penalty letter or write to the HMRC office that issued it.15GOV.UK. Appeal a Self Assessment Penalty for Late Filing or Late Payment

Explain why the penalty is wrong. The two most common grounds are that you had a reasonable excuse or that the penalty has been calculated incorrectly. HMRC will review the case internally and either cancel the penalty, reduce it, or uphold it.

If you disagree with the outcome, you can ask for a formal review by a different HMRC officer, or take the case straight to the independent tax tribunal.14GOV.UK. Disagree With a Tax Decision or Penalty You do not have to go through the review stage first. The tribunal weighs the evidence independently and can confirm, vary, or cancel the penalty.

Miss the 30-day deadline and you can still appeal, but you will need to explain why the appeal is late, and HMRC does not have to accept it.

How Long HMRC Has to Charge a Penalty

HMRC cannot issue penalties indefinitely. For penalties tied to a percentage of unpaid tax, the time limit is six years from the date the offence was committed, or if later, three years from the date the underlying tax assessment became final.16GOV.UK. HMRC Enquiry Manual – Penalties: Time Limits: General For fixed penalties not linked to a tax amount, the limit is six years from the date of the offence. A penalty assessment outside those windows is itself a strong ground for appeal.