How to Avoid Common HMRC Tax Penalties in 2026/2027

HMRC collects hundreds of millions in penalties every year, and the figure keeps climbing. Most of those penalties don’t hit deliberate tax dodgers or large corporations – they hit business owners, self-employed individuals and company directors who missed a deadline or filed something incorrectly.

The good news is that almost all common penalties are preventable. The system is mechanical: deadlines are published, the penalty amounts are set, and the rules don’t change much from year to year. Knowing what triggers each penalty is your first defence.

This guide covers the main HMRC penalty regimes in 2026/27 – Self Assessment, VAT, PAYE, Corporation Tax and CIS – plus failure to notify, reasonable excuses, and the changes coming in April 2027 for personal Self Assessment taxpayers.

Self Assessment Penalties

Self Assessment is the biggest source of routine penalties. Over a million people miss the 31 January online filing deadline most years, and the cost compounds fast for anyone who doesn’t act quickly.

Late Filing

If you miss the filing deadline (31 January for online returns, 31 October for paper), the penalties stack up as follows:

• 1 day late: Automatic £100 penalty, even if you owe no tax.
• 3 months late: £10 per day for up to 90 days, on top of the £100 – maximum £900.
• 6 months late: The greater of £300 or 5% of the tax due, on top of everything above.
• 12 months late: Another £300 or 5% of the tax due. Where the delay is deliberate or concealed, penalties can rise to 100% of the tax due.

Late Payment

Payment penalties are based on how late you settle the tax owed, not the return itself:

• 30 days late: 5% of the unpaid tax (no penalty in the first 30 days)
• 6 months late: A further 5% of the unpaid tax
• 12 months late: Another 5% of the unpaid tax

Interest

Late payment interest accrues from the original due date until the tax is paid. From 9 January 2026, the rate is 7.75% (the Bank of England base rate plus 4%). HMRC adjusts the rate when the base rate changes, so the cost moves over time.

Even if you can’t pay your tax bill in full, filing on time avoids the late-filing penalties. Paying part of it by 31 January reduces the interest. A Time to Pay arrangement can spread payments and stop late-payment penalties, though interest continues.

Our Self Assessment 2026 guide covers the filing process in detail.

VAT Penalties

VAT penalties are split into two distinct regimes – one for late returns, one for late payments – and both changed materially in recent years.

Late Submission Points

Each late VAT return adds one point to your record. Once you hit the threshold, a £200 penalty applies, with another £200 for every late return after that.

Points expire after two years if you stay below the threshold. Once at or above the threshold, you reset to zero by:

• Submitting all returns on time for the qualifying period – 24 months for annual, 12 months for quarterly, 6 months for monthly filers
• Bringing all submissions up to date for the past two years, including any that were previously late

Late Payment

The late-payment regime got tougher from 1 April 2025. The current rates are:

• Days 1–15: No penalty if paid in full or a Time to Pay arrangement is in place.
• Days 16–30: A first penalty of 3% of the VAT outstanding at day 15.
• Day 31 onwards: A further 3% of any amount still outstanding at day 30, plus a second penalty accruing daily at 10% per annum on the unpaid balance until it’s cleared.

Late payment interest also runs from the first day of being overdue at the standard HMRC rate (currently 7.75%).

The combination of fixed penalties at days 15 and 30, plus the 10% daily rate from day 31, makes long delays expensive quickly. If you’re struggling to pay, the cheapest option is to contact HMRC before day 15 and arrange a payment plan.

Corporation Tax Penalties

Corporation Tax filing and payment have different deadlines. The tax is due 9 months and 1 day after the end of the accounting period. The CT600 return is due 12 months after the end of the accounting period.

Filing penalties for a late CT600:

• 1 day late: £200
• 3 months late: Another £200
• 6 months late: HMRC estimates the Corporation Tax bill and adds 10% of the unpaid tax
• 12 months late: Another 10% of any unpaid tax

If a company files late three times in a row, the £200 penalties rise to £1,000 each.

Late payment doesn’t trigger a separate penalty, but interest applies from the day after the due date at the standard 7.75% rate. For companies with substantial liabilities, that interest builds fast.

PAYE and National Insurance Penalties

PAYE penalties hit employers per scheme, not per employee, and the amounts scale with payroll size.

Late Filing

Employers must submit a Full Payment Submission (FPS) on or before each payday. Monthly penalties for missing this:

• 1 to 9 employees: £100
• 10 to 49 employees: £200
• 50 to 249 employees: £300
• 250 or more employees: £400

Only one monthly penalty applies per scheme, regardless of how many late filings happened that month. The first late submission of each tax year is forgiven – after that, every late month attracts a penalty.

Late Payment

For monthly and quarterly PAYE payments, the first late payment in the tax year is ignored. After that, penalties are based on how many defaults you’ve had in the tax year:

• 1 to 3 defaults: 1% of the amount paid late
• 4 to 6 defaults: 2%
• 7 to 9 defaults: 3%
• 10 or more defaults: 4%

If a monthly or quarterly PAYE payment is still unpaid after 6 months, HMRC adds a further 5% of the unpaid amount. Another 5% applies if it’s still unpaid after 12 months.

Some annual or occasional PAYE and NIC payments – including Class 1A and Class 1B NICs – work differently, with a 5% penalty after 30 days unpaid.

Our payroll service covers the wider compliance picture for employers, including statutory pay rates and pensions auto-enrolment.

CIS Penalties

The Construction Industry Scheme catches a lot of contractors and subcontractors because the rules are detailed and the deadlines short. Monthly CIS returns are due by the 19th of each month.

Late filing penalties:

• 1 day late: £100
• 2 months late: Another £100 (so £200 total)
• 6 months late: £300 or 5% of the CIS deductions, whichever is greater
• 12 months late: Another £300 or 5%, whichever is greater. For deliberate or deliberate-and-concealed cases, penalties can reach up to £3,000 or 100% of the deductions.

Contractors who should have operated CIS but failed to register, verify subcontractors, deduct tax or file returns can face assessments for the deductions that should have been made, interest on the underpayments, and separate penalties depending on the nature of the failure.

Failure to Notify

Failure to notify is one of the more misunderstood penalty regimes. It applies when you should have told HMRC about a new tax liability or registration requirement – for example, starting a self-employed business, exceeding the VAT registration threshold, becoming chargeable to Corporation Tax, or receiving taxable untaxed income such as foreign rental income – and didn’t.

HMRC categorises the failure by behaviour:

• Non-deliberate: You didn’t realise you needed to notify, or made a genuine mistake.
• Deliberate: You knew you should have notified and chose not to.
• Deliberate and concealed: You knew, didn’t notify, and took steps to hide it.

The penalty is a percentage of the “potential lost revenue” – the tax that would have been collected if you’d notified on time. Maximum penalties are 30% of potential lost revenue for non-deliberate failures, 70% for deliberate, and 100% for deliberate and concealed.

The penalty can be reduced by what HMRC calls “telling, helping and giving” – being upfront about what went wrong, cooperating with the investigation, and providing access to your records. The final percentage depends on whether the disclosure was prompted by HMRC or made unprompted, how late the notification is, and the behaviour involved. Voluntary disclosure made before HMRC starts asking questions is usually much cheaper than waiting to be caught.

Reasonable Excuses and Appeals

You can appeal most penalties within 30 days if you have what HMRC calls a “reasonable excuse.” HMRC’s definition is narrower than most people expect.

Excuses HMRC normally accepts:

• Serious illness or hospital stay affecting you or someone you care for
• Death of a partner or close relative close to the deadline
• Software or postal failure you couldn’t have foreseen
• HMRC system outages during a filing attempt
• Fire, flood or natural disaster at the time of filing

Excuses HMRC normally rejects:

• Lack of funds: Unless caused by an unexpected event outside your control
• Reliance on someone else to file or pay on your behalf
• Not receiving a reminder: Reminders are a courtesy, not a legal requirement
• Finding the online system too difficult to use

If your appeal fails at the first stage, you can ask for a statutory review or take the matter to the Tax Tribunal. Both are free, though the Tribunal is more formal.

What’s Coming in April 2027

The Self Assessment penalty regime is being reformed from 6 April 2027. From that date, the new system is expected to apply to most personal Self Assessment taxpayers, including those who aren’t yet within Making Tax Digital for Income Tax.

It doesn’t apply in the same way to every Self Assessment return type – partnership, trust and estate, and non-resident company returns are treated differently.

The new late-submission system is points-based, similar to VAT. For Self Assessment with quarterly MTD updates, the threshold is 4 points before a penalty applies. Once at the threshold, a £200 penalty is charged for the breach and for each further missed submission.

The late-payment penalties also change. For 2027/28, the structure is:

• Days 1–15: No penalty if paid or a Time to Pay arrangement is in place.
• Days 16–30: A first penalty of 4% of the tax owed at day 15, unless it’s the taxpayer’s first year in the new regime and they pay in full or contact HMRC to set up a payment plan within 30 days.
• Day 31 onwards: A further 4% of the tax owed at day 30, plus a second penalty at 10% per annum charged daily on the outstanding balance.

Late-payment interest continues to run separately from the first day the payment is late, at the standard HMRC rate.

For taxpayers already inside MTD for Income Tax (which started in April 2026 for those with qualifying income over £50,000), HMRC has said points won’t be applied for late quarterly updates in the first year – a soft landing while people adjust to the new filing rhythm.

The change is enough that anyone who routinely files or pays close to the deadline should look at their processes now rather than wait for the first penalty to hit.

How Double Point Can Help

Most tax penalties are entirely avoidable with the right systems in place – calendar reminders, automated bookkeeping, proper VAT software, and a clear view of upcoming deadlines. The cost of getting it right is normally a fraction of what one missed deadline can cost.

At Double Point, our chartered accountants help businesses and individuals across the UK stay on top of their HMRC obligations, from quarterly VAT returns and monthly PAYE filings to annual Self Assessment and Corporation Tax. We also handle HMRC correspondence and appeals where penalties have already been issued.

Book a free consultation and we’ll review your filing and payment positions for 2026/27 before anything slips.