A guide to HMRC late filing penalties, penalty appeals and reasonable excuses

We all do our best to avoid it, but sometimes small businesses and the self-employed can end up with a penalty from HMRC.

HMRC penalties can be expensive and stressful – but, thankfully, sometimes they can be appealed. If you have a reasonable excuse, your penalty may be amended or waived after an appeal.

• Self Assessment and tax resource
• When is the Self Assessment deadline in 2021?
• The 7 bookkeeping mistakes small businesses and the self-employed should avoid
• How to use HMRC Time to Pay if you can’t pay your Self Assessment tax bill
• A guide to income tax for the self-employed
• What type of business insurance do I need?

Why might I get an HMRC penalty?

It’s important to understand the common mistakes that can lead to a penalty. Reasons HMRC might issue a penalty include:

• inaccuracies or errors on your return
• filing a late tax return
• late payment
• failing to keep adequate records

Avoiding HMRC penalties – dates to stay on top of

You need to register for Self Assessment by 5 October – read our guide on how to register and complete your Self Assessment if you’re unsure of what you need to do.

The deadline for filing your tax return is 31 October for paper forms and 31 January for online returns. You must pay your tax bill by 31 January.

On 25 January 2021, HMRC announced that they won't be issuing any late filing penalties as long as you file online by 28 February. The deadline for paying your tax bill is still 31 January, so interest will be charged from 1 February on any outstanding tax owed. You can set up a payment plan if you need more time to pay.

Self Assessment late filing penalties

Self Assessment late payment penalties

You’ll have to pay a penalty, plus interest, if you pay your tax bill late. If you miss a deadline you must contact HMRC as soon as possible. Use this tool on gov.uk to estimate your penalty if you don’t pay.

Company Tax Return late filing penalties

If you’re a limited company, your Corporation Tax return is due 12 months after the end of the accounting period it covers, and the deadline to pay your Corporation Tax bill is usually nine months and one day after the end of your accounting period.

Reasonable excuses for filing your tax return late

We all know that sometimes the unexpected happens and life events can send us off course. That’s why HMRC details what it deems a ‘reasonable excuse’ for late filing or payment.

If you receive a penalty, there’s a chance you'll be able to appeal if there were extenuating circumstances that prevented you from filing your tax return on time.

Examples of reasonable excuses include:

• your partner or another close relative died shortly before the deadline for submitting a tax return or payment
• you had an unexpected hospital stay that meant you couldn’t meet your obligations
• you suffered from a serious or life-threatening illness
• the software you use to complete your returns failed just before the deadline, despite you taking reasonable care to maintain it
• HMRC experienced technical problems – for example, the Self Assessment portal went down
• fire, flood, or theft stopped you from completing your return on time
• your delay was in relation to a disability

Your case will be considered on an individual basis, and HMRC will still want to see that you took reasonable care to meet your tax obligations.

Reasonable excuse and coronavirus

The government has announced that they will consider the coronavirus pandemic as a reasonable excuse for late filing. You can also set up a payment plan if you need more time to pay.

If you can prove that you’ve been impacted by Covid-19, you may be able make a successful appeal against HMRC. As this will be considered on a case-by-case basis it’s a good idea to speak to HMRC before the deadline to clarify whether you have a ‘reasonable excuse’ – and to pay on time if you can. Find out more about coronavirus support.

How do I appeal an HMRC penalty?

The appeal process varies depending on the penalty you’ve received. You should usually appeal within 30 days of the date on your penalty notice. However, if you were affected by coronavirus and your penalty was issued anytime from February 2020, then HMRC will allow an additional three months for you to send an appeal.

Appealing a Self Assessment late filing penalty

To appeal against the £100 fine for filing your Self Assessment tax return late, you first need to have either filed your return or told HMRC you don’t need to complete one.

You can use the Self Assessment online portal to appeal any penalties from 2016-17 tax year or later. If you have an earlier penalty, or prefer to use a postal form, you can download form SA370 and send the completed form to HMRC.

Appealing a Corporation Tax or VAT late filing penalty

You can use your HMRC online account if you’re a business appealing against a penalty for filing a VAT or Corporation Tax return late.

There are also specific online forms for certain types of appeal, which you’ll need to complete online and print before posting to HMRC. Examples of claim forms include:

• reasonable excuse for filing a VAT return late
• IT problems stopped you from filing your tax return on time

Appealing a PAYE penalty

If you’re an employer appealing against a penalty relating to PAYE, you should use your account at HMRC’s online PAYE for employers portal.

Who handles a penalty appeal?

Your appeal will be investigated by an HMRC tax officer who wasn't involved in the original penalty decision.

Alternatively, if you’re appealing a penalty related to an indirect tax such as VAT or excise duty, you might choose to appeal directly to the tax tribunal. You can also request a review from HMRC if you’d prefer.

What if I disagree with HMRC’s decision?

If you disagree with HMRC’s review of your penalty, you can make a further appeal to the tax tribunal. This is an independent body that’ll take evidence from both parties and then make its own decision.

If you want to take your case to tribunal, you must do so within 30 days of the review decision.

Alternatively, you might consider applying for alternative dispute resolution (ADR) to avoid a court hearing. You can apply for ADR if you're trying to resolve a dispute with your personal tax and haven’t been successful through HRMC’s appeal process.

During ADR, an impartial third party will act as a mediator between you and HMRC. The idea is that they will help you identify the areas that need attention and, where relevant, help to re-establish contact between the two parties.

ADR is particularly useful if you disagree with HMRC over the facts of your case, or if communication between you and HMRC has broken down.

However, you should note that ADR isn’t an option if you’re appealing a fixed penalty, or if you’re disputing your payment deadline.