Penalties: Late Filing

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. 

**Where the late filing relates to offshore income and the territories are listed as either Category 2 or 3, the penalties are increased. For Category 3 territory inaccuracies, penalties can be as much as 200% of the tax. .

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

Electronic communications

The Income and Corporation Taxes (Electronic Communications) (Amendment) Regulations 2023 provide that, from 6 April 2023, HMRC may digitally issue notices of daily late-filing penalties.

Coronavirus

The government made certain relaxations to the tax penalty regime as a result of the coronavirus (COVID-19) pandemic, these include:

• Deferral of Income Tax payments on account due by 31 July 2020 for the 2019-20 tax year under Self Assessment until 31 January 2021. No penalties were charged in the deferral period. See COVID 19: Deferring Income Tax payments
• Time to pay assistance: see COVID-19: Time to Pay
• Appeals: Reasonable excuse:  updated guidance on when taxpayers have a reasonable excuse for the late filing of returns or late payment of tax to specifically include being affected by Coronavirus. See Coronavirus is a reasonable excuse
• Appeals: deadline extended: for appealing tax penalties and decisions from 30 days to up to 3 months where the taxpayer or their business has been affected by COVID-19. See COVID-19: Tax appeal deadlines extended.
• 2019-20 Self Assessment late filing penalties usually charged on 1 February 2021 were not charged immediately. Taxpayers had until 28 February 2021 to file their tax return before a £100 late filing penalty was charged. See 2019-20 Tax return penalties delayed to 28 February
• 2020-21 Self Assessment late filing penalties usually charged on 1 February 2022 were not charged immediately. Taxpayers had until 28 February 2022 to file their tax return before a £100 late filing penalty was charged.
  • 2020-21 Self Assessment late payment penalties were not charged immediately. Taxpayers had until 1 April 2022 to pay or set up a time to pay agreement. 
  • See 30-day penalty waiver for 2020-21 tax return filing & payment.

Proposed changes to the penalty regime

Measures in Finance Bill 2019 which proposed to replace the schedule 55 FA 2009 regime with a points-based system of late filing penalties: designed for Making Tax Digital and to initially apply to Income Tax Self Assessment and VAT, were shelved in Budget 2018. They were instead included in Finance Act 2021.

The new penalty system applies to late filing and late payment and is effective for VAT for accounting periods beginning on or after 1 January 2023 (delayed from 1 April 2022), following the revised commencement timetable for Making Tax Digital for Business.

The new rules come into effect for Income Tax Self Assessment (ITSA) as follows:

• For taxpayers with business or property income over £50,000: accounting periods beginning on or after 6 April 2026 (delayed for two years).
• For taxpayers with business or property income over £30,000: accounting periods beginning on or after 6 April 2027.
• General partnerships from a date yet to be determined. 

It is anticipated that once the new system is in place, a one-year period of grace will apply to MTD filings, as the legislation specifies HMRC can delay to allow for a ‘familiarisation period’

The new system will replace the schedule 55 FA 2009 penalty regime for the relevant returns.

• A point will accrue for each failure to submit on time.
• When the point threshold is reached, a penalty will be charged.
• Points will be reset after a period of good compliance.

See Penalties: Making Tax Digital

Useful guides on this topic

Client guide: Reasonable care and tax penalties
What triggers a tax penalty? What standard of care is expected from a taxpayer? What is reasonable care? When is an error careless?

Appeals
How to appeal a penalty for late filing of a tax return or late payment of tax. This section covers appeals in relation to tax returns and payments for income tax Self Assessment, Corporation Tax, PAYE, Non-residents CGT, VAT, ATED, SDLT and IHT.