HMRC penalty types
The main penalty regimes — late filing, late payment, inaccurate returns — and how each one works.
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The three families of HMRC penalty
Late filing penalties punish a missing return. Late payment penalties and interest punish missing money. Inaccuracy penalties punish wrong figures on a return that did arrive. They run independently and they stack — one late, wrong return with unpaid tax can collect all three.
Knowing which family a penalty belongs to matters because the defences differ: lateness turns on reasonable excuse, inaccuracy turns on behaviour and disclosure.
Late filing and late payment
Self Assessment starts at £100 the day the return is late, adds daily £10 penalties from three months, and further charges at six and twelve months. Late payment adds 5% surcharges at 30 days, six months, and twelve months, with interest running daily throughout. VAT runs its own points-based system, and Corporation Tax and PAYE have their own scales.
The shared principle: penalties grow with delay, and stop growing the day you act. Filing something and arranging payment always beats waiting.
Inaccuracy penalties follow behaviour, not size
An error made despite reasonable care carries no penalty at all. A careless error can cost up to 30% of the extra tax; a deliberate one up to 70%; deliberate and concealed up to 100%. Within each band, the penalty falls — sharply — for telling HMRC before they ask, and for cooperating fully once asked.
The same £5,000 error can cost £0 or £5,000 depending entirely on conduct. That asymmetry is the whole strategy: careful returns, and fast unprompted disclosure when something is found.
Interest is not a penalty — and never goes away
Interest accrues daily on any late tax, automatically, at rates linked to the Bank of England base rate. It cannot be appealed on reasonable-excuse grounds and survives every arrangement, including Time to Pay.
Treat interest as the cost of time and penalties as the cost of conduct. You can always fix conduct; only payment fixes time.
Frequently asked questions
Can HMRC charge more than one penalty for the same year?
Yes. Late filing, late payment, and inaccuracy penalties are separate regimes and stack freely — a late return with an error and unpaid tax can attract all three, plus interest. Each is also defended separately.
What is a 'prompted' versus 'unprompted' disclosure?
Unprompted means you told HMRC before you had reason to believe they had found or were about to find the error; prompted means they got there first. The distinction moves the penalty band substantially — unprompted careless disclosures can reach a nil penalty.
Do penalties apply if I owe no tax?
Filing penalties do — the Self Assessment £100 and its follow-ons apply even on a nil return. Payment and inaccuracy penalties are percentages of tax, so they fall away when no tax was underpaid.
Are HMRC penalties tax-deductible?
No. Penalties and the interest on late personal tax are not deductible expenses for the business or the individual. They are pure cost — which is the point of them.