HMRC can apply tax-geared penalties if it issues you with a tax assessment that is too low and you fail to tell HMRC that it is too low.

This is a freeview guide.

Tax penalties apply for failure to notify HMRC about an under-assessment of tax. 

  • You have 30 days to take reasonable steps to notify HMRC about the under-assessment.

In deciding what steps (if any) are reasonable HMRC must consider:

  • Whether you knew or should have known, about the under-assessment.
  • What steps would have been reasonable to take to notify HMRC.

Penalties for failure to notify an under-assessment are applied under Schedule 24 FA 2007.

A penalty can only apply if there is a potential loss of tax.

The maximum penalty percentage is 30%.

The minimum penalty percentage, for an unprompted disclosure, is 0%.

  • If you do not notify HMRC of the under-assessment and HMRC discovers this, the penalty range will be 15%-30% of tax under-assessed.
  • If you do notify HMRC of the under-assessment, the penalty range is 0%-15%.

How to calculate a penalty for failure to notify an under-assessment

1. Calculate the potential lost revenue (PLR) this is the amount of tax under-assessed.

2. Decide whether the disclosure is prompted or unprompted.

3. Apply discounts, if possible for the quality of disclosure.

4. Calculate the penalty rate.

5. Calculate the penalty.

6. Consider other reductions for mitigating factors, if any.

See Penalties: Error, or Mistake


You may appeal a decision of HMRC within 30 days of receiving a penalty assessment.

See How to appeal a tax penalty

Oak ad
Are you enjoying our content? 

Thousands of accountants and advisers and their clients use as their primary TAX resource.

Register with us now to receive our receive our FREE weekly SME Tax News updates.