Penalties & Compliance

At a glance

The current late filing penalty regime was introduced by section 106 and Schedule 55 of the 2009 Finance Act.

The regime was rolled out gradually as follows:

Penalties under the Sch 55 penalty regime

Penalties are all charged at the same rate for all the taxes except for:

• PAYE: see below
• CIS: see below
• Offshore income: see below
• Soft Drinks Industry Levy: see below

*The penalties for being 6 months late and 12 months late are subject to the interaction rule in para 17(3) and taken together they should not exceed 100% the tax due. See Grounds for Appeal: HMRC error or flaw. 

**Higher penalties apply for returns of category 2 and 3 information.

See:

• Penalties: SA late filing and payment for worked examples.
• Penalties, grounds for appeal: HMRC error for cases on miscalculation of penalties and errors in penalty notice and other failures and cases featuring successful and unsuccessful appeals. 
• Penalties: Grounds for Appeal toolkit for other reasons to appeal penalties
  

Penalties for late filing of Non-Resident CGT returns

These are calculated under Schedule 55 (as above), although subject to special non-statutory transitional provisions:

• No penalties were charged for late filing before 6 May 2016.
• In May 2017 HMRC confirmed that it would not charge daily penalties.

Appeal against NRCGT late filing penalties, see

• Non-Residents CGT returns: Penalties & Appeals
  
  • This note tracks the wide range of different decisions with regards to reasonable excuse for failing to file a return and penalty miscalculation issues.
• Penalties: Grounds for Appeal toolkit
  • This takes you step by step through the appeal process.

Penalties for late filing of online property disposal returns

For disposals completing on or after 6 April 2020, gains on UK residential property disposals must now be declared on HMRC's online CGT disposal return, and the tax paid, using the Capital Gains Tax UK property disposal service, within 30 days of completion (60 days from 27 October 2021).

These are also calculated under Schedule 55 (as above):

• No penalties were charged for late filing before 1 August 2020.
• It is not yet known whether HMRC will apply the same leniency here for daily penalties as they have for Non-Resident CGT returns (see above).

You can appeal against penalties issued, see Penalties: Grounds for Appeal toolkit and How to appeal a tax penalty (subscriber version)

Penalties for late PAYE returns

Sch 55 penalties were to apply to PAYE from 2013-14.

Under the change over to Real Time Information (RTI) filing, sch 55 did not apply until March 2015.

PAYE late fiing penalty rates 

This fixed penalty applies to late returns for each month after an employer has notified HMRC of their liability and to months that they have missed before that notification. The first month is excluded for the first failure in a tax year.

• For PAYE Annual Returns due for 2012-13 the late filing penalty is £100 per month, per 50 employees.
• If the filing deadline of 19 May is missed the fine will be £100, even if only a part-month late.
• HMRC will not raise a penalty notice until you are four months late, and it will not do this until September, so if you forget to file a return you will probably incur a penalty of £400.

For further information on RTI penalites, see Tax Penalties RTI

Penalties for late CIS returns

• See also Penalties: Construction Industry Scheme for a detailed breakdown of old and new and transitional measures

CIS: failure to register

When the first CIS return of a new contractor is filed, the total penalty for all fixed-penalty defaults in the capping period is capped at a maximum of £3,000. See Penalties: CIS (Construction Industry Scheme) for further detail. 

Offshore income and gains

The 2010 Finance Act modified Sch 55 introducing tougher penalties for category 2 and 3 offences relating to offshore income and gains. The effect is that penalties for inaccuracy increase to 45% for a careless but not concealed error to a maximum of 200%.

See Penalties: Offshore Income, CGT and IHT

Soft Drinks Industry Levy

Penalties apply for failure to file returns within 30 days.

They apply to late returns starting with the June 2019 return.

See Soft Drinks Industry Levy

All penalties

Determination of penalty when return is made

HMRC may determine the amount of tax due in order to raise a tax geared penalty. The amount will be re-assessed when the taxpayer makes the return.

Appeal and excuse

No penalty applies where the taxpayer satisfies HMRC or the tribunal on appeal that they have a reasonable excuse for the failure.

• Insufficiency of funds or relying on another to do something is not a reasonable excuse.
• Following the end of the reasonable excuse circumstances the failure has to have been remedied without unreasonable delay.
• Proof of posting and other excuses, see Tax penalties: grounds for appeal

Daily penalties

There have been various cases which look at whether penalties have been correctly issued, see  Appeals: Grounds for appeal toolkit