It is in everyone's interest to avoid penalties. Understanding how Her Majesty's Revenue and Customs (HMRC) penalties work can help you to help your clients to avoid them.

Each tax or duty has specific rules on penalties for late payment or filing. A penalty may also be due if your client doesn't tell HMRC about a liability to tax at the right time.

We strongly recommend you read HMRC guidance "Penalties: an overview for agents and advisers". Click here to view.

Following is a summary of the key points of note for each main category.

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Self-assessment

Partnership

Corporation Tax

PAYE & National Insurance

Construction Industry Scheme

VAT

Misdeclaration Penalty

Late Registration Penalty

Civil Evasion Penalty

Default Interest

Default Surcharge

Surcharge Payable

Companies Penalties and Interest charge

Self-assessment tax return deadlines and penalties

Deadline for Registration and Submission of 2016-17 Tax returns

	Date Due
	2019-20	2018-19
Register for self-assessment	05.10.20	05.10.19
Paper Tax returns	31.10.20	31.10.19
Online Tax returns	31.01.21	31.01.20
Pay Tax Due	31.01.21	31.01.20

Late filing penalties - Self-assessment tax returns

Late filings	Penalty
Initial Fixed Penalty - 1 day to 3 months late	£100.00
From three months late to six months	£10.00 daily charge added up to £900.00
Six months late	Either 5% of the tax due or £300.00, whichever is the greater
Twelve months late	Either 5% of the tax due or £300.00, whichever is the greater

All fines are cumulative.

Even if the actual tax due is less than £100.00 or even if a rebate is due the initial fixed penalty remains.

Late payment penalties - Self-assessment tax returns

Late Payment	Penalty
30 days late	5% of the tax unpaid at that time
6 months late	A further penalty charge of 5% of the tax that is still unpaid
12 months late	A further penalty charge of 5% of the tax that is still unpaid

All penalties are cumulative.

These penalties are in addition to any interest charged on all outstanding amounts, including unpaid penalties, until the payment is received.

Penalties do not apply when an agreed time to pay has been arranged with HMRC.

For the HMRC information on self-assessment penalties go to Self-assessment tax returns: Penalties.

Partnership tax returns

Late filing penalties - Partnership tax returns

Late Filings	Penalty Per Partner
Initial Fixed Penalty - 1 day to 3 months late	£100.00 each partner
From three months late to six months	£10.00 daily charge added up to £900.00 each partner
Six months late	A further penalty of £300.00 each partner
Twelve months late	A further penalty of £300.00 each partner

The above fines apply to each partner. Therefore, if a partnership has 3 partners the initial fine is £300.00, the second £30.00 per day up to £2,700.00 and so on.

Corporation tax returns

Penalties for not telling HMRC your company is liable for corporation tax

Type of failure	Maximum penalty for each type of failure
Non-deliberate	30% of the potential lost revenue
Deliberate but not concealed	70% of the potential lost revenue
Deliberate and concealed	100% of the potential lost revenue

Late filing penalties - Corporation tax returns

Late Filings	Penalty
Initial Fixed Penalty - 1 day late	£100.00
Three months late	A further £100.00
Six months late	HMRC will estimate your company's tax bill and add a penalty of 10% of the unpaid tax
Twelve months late	HMRC will add a further 10% of the unpaid tax

If your corporation tax return is late 3 times in a row, the £100.00 penalty is increased to £500.00.

Penalties for inaccurate company tax returns, documents and information

The penalty is a percentage of the extra tax due when HMRC corrects your mistake. The amount of penalty you'll face will depend on the type of error and when you told HMRC about it.

The penalty will be less if you tell HMRC about your error before they find out about it - this is known as unprompted disclosure. If you told HMRC after they found out about the error, or if you told them because you thought they were about to find out, this is called prompted disclosure.

Type of error	Penalty Range
Type of error	Unprompted disclosure	Prompted disclosure
Careless	0% - 30%	15% - 30%
Deliberate but not concealed	20% - 70%	35% - 70%
Deliberate and concealed	30% - 100%	50% - 100%

Interest charged on late or underpaid corporation tax

If you pay your Corporation Tax late, don't pay enough, or don't pay at all, HMRC will charge your company or organisation interest. This interest is known to HMRC as late payment interest.

Interest is charged from the day after the tax should have been paid (normally 9 months and one day after the end of your accounting period) until the date you pay it. Interest charges are automatic, however, interest is not charged on interest itself.

Any late payment interest you pay to HMRC is tax deductible for Corporation Tax purposes. This means you can include this expense in your company accounts for the accounting period when the interest was incurred.

PAYE & National Insurance

Late filing penalties - PAYE real-time information returns

Number of Employees	Penalty
From 1 - 9	£100.00
From 10 - 49	£200.00
From 50 - 249	£300.00
250 or more	£400.00

An employer is liable to a penalty if, during a tax month, they fail to file one or more RTI returns by the filing date.

For each tax year an employer will not be charged a penalty for the first tax month during which they fail to file one or more returns on time.

This exemption does not apply to employers who operate an annual PAYE scheme who are only required to file one return per year.

Interest charged on late or underpaid PAYE and National Insurance

If you pay your PAYE late, don't pay enough, or don't pay at all, HMRC will charge your company or organisation interest. This interest is known to HMRC as late payment interest.

Interest is charged from the day after the PAYE should have been paid until the date you pay it. Interest charges are automatic, however, interest is not charged on interest itself.

Construction Industry Scheme

Interest charged on late or underpaid CIS payments

If you pay your CIS late, don't pay enough, or don't pay at all, HMRC will charge your company or organisation interest. This interest is known to HMRC as late payment interest.

Interest is charged from the day after the CIS should have been paid until the date you pay it. Interest charges are automatic, however, interest is not charged on interest itself.

Late filing penalties - CIS returns

How late the return is	Penalty
1 day late	£100.00
2 months late	£200.00
6 months late	£300.00 or 5% of the CIS deductions on the return, whichever is the greater
12 months late	£300.00 or 5% of the CIS deductions on the return, whichever is the greater

For a return later than this, you may be given an additional penalty of up to £3,000.00 or 100% of the CIS deductions on the return, whichever is higher.

VAT

Late filing penalties - VAT returns

Number of late filings	Penalty
First Late filing	£100.00
Second late filing	£200.00
Third late filing	£300.00
Fourth late filing	£300.00
Fifth and all subsequent late filings	£400.00

The penalty period is 1 year but the 12 month period starts again each time a late filing occurs.

Late payment penalties - VAT returns

Number of late payments	% of VAT owed
First late payment	No penalty but 12 month penalty period commences
Second late payment	2%
Third late payment	5%
Fourth late payment	10%
Fifth and all subsequent late payments	15%

The penalty period is 1 year but the 12 month period starts again each time a late payment occurs.

Misdeclaration Penalty

The new penalties for inaccuracies in tax returns and documents was introduced on 1st April 2008 but only for Returns where the accounting period commences on or after 1st April 2008.

Information on the new penalties can be found on VAT Notice 700/42.

Late Registration Penalty - VAT

Late by	Penalty
Up to 9 months	5%
9 - 18 months	10%
Over 18 months	15%

The penalty is calculated as a percentage of the VAT due, from the date when you should have registered to the date when you do register

Subject to a minimum penalty of £50.00

Information on Late Registration Penalties can be found on VAT Notice 700/41 and on Factsheet CC/FS11

Civil Evasion Penalty

Based on tax evaded, maximum penalty: 100% (plus interest)

Possible reductions on penalty	Up to
a. An early and truthful explanation as to why the arrears arose and the true extent of them	40%
b. Co-operation in substantiating the true amount of arrears Attending interviews and producing records and information as required	40%
Total Reduction	80%

Default Interest

The interest rate is set by the Air Passenger Duty and other indirect taxes (interest rate) Regulations 1988. It will be a simple, not compound, rate and will broadly be in line with Commercial Rates of interest.

You cannot deduct this interest from your net profit for the purposes of calculating your direct tax liability - the rate of interest is set to reflect this.

The default interest is calculated at the above rates on the VAT due.

Default Surcharge

A default occurs when a return is received late or when it is received on time but the tax is not.

Default surcharge

The default surcharge will be suspended until a second default occurs within 12 months of the first default
At this point the default surcharge will be issued.

Surcharge liability notice

Issued for default surcharge
Once issued it will remain in force until you have not been in default for 12 months.

Surcharge Payable

From 01.10.2003
Default	% of VAT owed
1st	0% but default period commences
2nd	2%
3rd	5%
4th	10%
5th & subsequent	15%

Minimum surcharge £30.

At 2% or 5% level, no surcharge assessment will be issued under £400.00.

From 1st January 2003, for businesses with turnover up to £150,000.00 p.a., no automatic surcharge until at least 4 separate written communications offering help and support have been made.

Between July 2001 and December 2002 for businesses up to £100,000.00 no automatic surcharge until three separate communications received.

Companies House - Penalties and Interest charge

Late filing penalties - Annual Accounts to Companies House

Late filings	Penalty
Up to 1 month	£150.00
Between 1 to 3 months	£375.00
Between 3 to 6 months	£750.00
More than 6 months	£1,500.00

The penalty is doubled if your accounts are late 2 years in a row.

Penalties for public limited companies are different.

You can be fined up to £5,000.00 and your company struck off the register if you don't send Companies House your accounts or annual return.

Late submission of your Companies House annual return

The due date for your annual return is usually a year after either the:

Incorporation of your company
Date you filed your last annual return.

A company has 28 days after the due date to file the annual return.

A company could be fined up to £5,000.00 and the company struck off if you don't send Companies House your annual return.

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