HMRC penalties and how to avoid them 1001

Nobody wants be fined, but unfortunately when you run a business there are various penalties you run the risk of facing.

Whether you file your own tax returns or have an accountant submit your VAT for you, any liability for penalties for late returns, late payments or any errors on paperwork legally remains with you. Understanding how HMRC penalties work is essential to help you to avoid them.

You may be charged a penalty for:

  • Late payments or filing
  • Not telling HMRC about a liability to tax at the right time
  • Submitting an inaccurate return or other tax document where tax has been unpaid, understated, over-claimed or under-assessed as a result
  • Not telling HMRC that an assessment is too low

The penalties incurred will depend on which tax you are dealing with. Some of the penalties you could face include:

Late self-assessment tax returns

There is a penalty of £100 for tax returns up to 3 months late. The later the payment, the more you’ll pay. You will also be charged interest on any late payments.

Late PAYE/National Insurance payments

If you have paid employees but do not send a Full Payment Submission (FPS), or if you send one late, you will be sent a late filing notice and may be charged a penalty.

Late and inaccurate PAYE returns

Late or inaccurate returns face different penalty charges depending on how many employees you have. The penalty starts at £100 for 1-9 employees and rises to £400 for 250 or more employees.

Missed VAT deadlines or inaccurate submissions

If you don’t submit your VAT return by the deadline you could face a penalty or surcharge. The surcharge is a percentage of the amount of VAT outstanding on the due date for the accounting period that is in default. You don’t have to pay a surcharge for your first default

If you make a mistake on your VAT return you may face a penalty of 100% of any tax under-stated or over-claimed.

If HMRC sends you an assessment that’s too low and you do not tell them within 30 days, you could face a penalty of 30% of the assessment value.

A penalty of £400 will be charged if you submit a paper VAT return rather than an online submission without HMRC’s prior consent.

Missed Corporation Tax deadlines

If your business is liable for Corporation Tax and you don’t meet HMRC deadlines and requirements, you may face a penalty.

The amount of the penalty is calculated by applying a percentage to the amount of tax you owe. Penalties may be reduced if you correct an error immediately.


As part of Making Tax Digital which comes into effect on 1st April 2019, HMRC has proposed a new penalty model for businesses that do not pay their taxes on time.

The proposal will introduce various penalties depending on when the payment is made:

  • There will be no penalty if the payment is made within 15 days of the due date
  • There will be a 2.5% penalty of the outstanding tax if payment is made within 16-30 days
  • There will be a 5% penalty of the outstanding tax if there’s no payment within 31 days


To keep up to date with HMRC penalties and ensure you don’t get fined, Magpie Accountancy recommends working with an accountant. If you have any questions feel free to get in touch.

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