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HMRC penalties and how to avoid them UK

HMRC penalties catch more UK businesses than you might think. Late filing, late payment, inaccurate returns, and missed deadlines can all trigger fines, interest, and in serious cases, further investigation. The good news is that most HMRC penalties are avoidable with the right systems and awareness. This guide explains the main types of penalties, how they work, and what you can do to avoid them.

We cover corporation tax penalties, VAT penalties, self-assessment penalties, PAYE and RTI penalties, and the newer penalty points system. This is for UK limited companies, sole traders, and directors who want to stay on the right side of HMRC.

Corporation tax penalties

If your limited company files or pays its corporation tax late, HMRC will penalise you. The main deadlines are:

  • Filing deadline: 12 months after the end of your accounting period. Your CT600 return must be filed with HMRC by this date.
  • Payment deadline: 9 months and 1 day after the end of your accounting period. The tax must be paid by this date (large companies may need to pay in quarterly instalments).

Late filing penalties

  • 1 day late: £100
  • 3 months late: Another £100
  • 6 months late: HMRC estimates your tax and charges 10% of the unpaid amount
  • 12 months late: A further 10% of the unpaid amount

If your return is late three times in a row, the £100 penalties increase to £500 each. These penalties apply even if you owe no tax. Filing on time is essential.

Late payment penalties and interest

If you pay your corporation tax late, HMRC charges interest from the due date until the date you pay. The interest rate is set by HMRC and currently sits well above bank rates. There is no penalty for the first 30 days of late payment, but interest accrues from day one.

For more on corporation tax deadlines, see our post on when corporation tax is due in the UK.

VAT penalties (new points-based system)

From January 2023, HMRC replaced the old default surcharge system for VAT with a new points-based penalty regime. This applies to VAT return periods starting on or after 1 January 2023.

Late submission penalties

Each time you submit a VAT return late, you receive one penalty point. Once you reach the penalty threshold for your return frequency, you receive a £200 penalty for that late return and every subsequent late return until your points are reset.

Thresholds:

  • Annual returns: 2 points
  • Quarterly returns: 4 points
  • Monthly returns: 5 points

To reset your points to zero, you must submit all returns on time for a set period (12 months for quarterly filers) and have no outstanding returns.

Late payment penalties

VAT late payment penalties work in two stages:

  • Up to 15 days late: No penalty, but interest accrues from day one.
  • 16 to 30 days late: A penalty of 2% of the VAT owed at day 15.
  • 31 days or more late: An additional 2% of the VAT owed at day 30, plus a daily penalty at an annualised rate of 4% of the outstanding amount.

HMRC also charges late payment interest on top of these penalties. The message is clear: pay on time. If you are struggling, contact HMRC before the deadline to arrange a Time to Pay agreement. Our VAT service makes sure returns and payments are never late.

Self-assessment penalties

Self-assessment penalties affect sole traders, landlords, and company directors who need to file a personal tax return. The deadline for online filing is 31 January after the end of the tax year (e.g. 31 January 2026 for the 2024/25 tax year). Payment is also due by 31 January.

Late filing

  • 1 day late: £100 automatic penalty
  • 3 months late: £10 per day for up to 90 days (maximum £900)
  • 6 months late: 5% of the tax due or £300, whichever is greater
  • 12 months late: A further 5% of the tax due or £300, whichever is greater. In serious cases, the penalty can be up to 100% of the tax due.

Late payment

  • 30 days late: 5% of the tax unpaid at that date
  • 6 months late: A further 5% of the tax still unpaid
  • 12 months late: A further 5%

Interest also runs on late payments. The combined effect of penalties and interest can add significantly to your tax bill. Filing early (even if you cannot pay immediately) avoids the filing penalties, and you can often arrange a payment plan with HMRC.

PAYE and RTI penalties

Employers must submit Full Payment Submissions (FPS) to HMRC on or before each payday under Real Time Information (RTI). Late or missing submissions trigger penalties:

  • 1 to 9 employees: £100 per month late
  • 10 to 49 employees: £200 per month late
  • 50 to 249 employees: £300 per month late
  • 250+ employees: £400 per month late

These penalties apply for each tax month that a submission is late. After 12 months of continued failure, HMRC may charge an additional penalty of 5% of the tax and NI that should have been reported.

You must also pay the tax and NI you deduct from employees to HMRC by the 22nd of the following month (or 19th if paying by post). Late payment triggers interest and, for persistent late payers, a penalty.

Keeping your Payroll & PAYE on track avoids these penalties entirely. If you are handling payroll yourself, set calendar reminders for every submission and payment date.

Penalties for inaccurate returns

If your tax return contains an inaccuracy that leads to too little tax being paid, HMRC can charge a penalty based on the behaviour:

  • Careless (lack of reasonable care): Penalty of 0% to 30% of the extra tax due
  • Deliberate (you knew it was wrong): 20% to 70%
  • Deliberate and concealed: 30% to 100%

Penalties can be reduced if you tell HMRC about the error before they find it (unprompted disclosure) and cooperate fully. The best defence is accurate record-keeping and a careful review before filing. Your accountant should check your return before submission.

How to avoid HMRC penalties

Most penalties come down to missed deadlines or poor record-keeping. Here are the practical steps to avoid them:

1. Know your deadlines. Every tax has its own filing and payment deadlines. Keep a calendar of all key dates (we track these for our clients as part of our Statutory Accounts & Tax service).

2. File early. You do not have to wait until the deadline. Filing corporation tax, VAT, and self-assessment returns well ahead of the deadline gives you time to resolve any issues.

3. Pay on time. Set up direct debits where possible. If you cannot pay in full, contact HMRC before the deadline to agree a Time to Pay arrangement. This can prevent or reduce penalties.

4. Keep good records. Digital records under Making Tax Digital, proper invoices, and organised receipts make accurate filing much easier. Good bookkeeping is the foundation.

5. Use a professional. An accountant keeps you on top of deadlines, reviews returns for accuracy, and deals with HMRC on your behalf. The cost of professional help is almost always less than the cost of penalties and interest.

6. Check your returns. Before submitting, review the figures carefully. If something looks wrong, query it before filing rather than after.

What to do if you receive a penalty

If HMRC issues a penalty, you have options:

  • Check it is correct. Make sure the penalty relates to a genuine late submission or payment. HMRC occasionally issues penalties in error.
  • Appeal if you have a reasonable excuse. Illness, bereavement, HMRC system failures, and other circumstances beyond your control may qualify. The excuse must be genuine and you must have put things right as soon as you could.
  • Pay the penalty. If the penalty is correct and you do not have a reasonable excuse, pay it promptly to avoid interest.
  • Get professional help. Your accountant can review the penalty and handle the appeal process for you.

HMRC publishes guidance on reasonable excuses at GOV.UK.

UK tax and legal accuracy

The penalty rates and thresholds described here apply to the 2024/25 and 2025/26 tax years. The VAT points-based penalty system applies to return periods starting on or after 1 January 2023. HMRC updates penalty rates, interest rates, and thresholds periodically. This article is for informational purposes only and does not constitute professional tax or financial advice. Please speak to a qualified accountant before taking action.

Frequently asked questions

Can HMRC waive a penalty?

Yes, if you have a reasonable excuse. This might include serious illness, a close bereavement, or an HMRC system outage that prevented you from filing. Being too busy or not knowing the deadline is generally not accepted.

Does HMRC charge interest as well as penalties?

Yes. Interest runs on late payments from the due date until the date you pay, in addition to any penalties. The interest rate is set by HMRC and can change.

What is a Time to Pay arrangement?

If you cannot afford to pay your tax bill by the deadline, you can contact HMRC to agree a payment plan (Time to Pay). This allows you to spread the cost over several months. Agreeing before the deadline can reduce or prevent late payment penalties.

Do penalties apply if I owe no tax?

Yes, for some obligations. Corporation tax late filing penalties and self-assessment late filing penalties apply even if you owe nothing. The penalty is for missing the deadline, not for the amount owed.

How do I check my penalty points for VAT?

You can view your penalty points through your VAT online account on the HMRC website. Your accountant can also check on your behalf if they have agent access.

Summary and next steps

HMRC penalties are avoidable. Know your deadlines, file and pay on time, keep accurate records, and use a professional to review your returns. If you do receive a penalty, check it carefully and appeal if you have a reasonable excuse.

At Figures we track every deadline, prepare and file your returns, and deal with HMRC so you do not have to. If you want to take the stress out of compliance, book a discovery call or see our full range of services.