HMRC Penalties

It is in your interest to avoid penalties and understanding which HMRC penalties you may be at risk of is usually of great help. The HMRC penalties aren’t codified in a single document as each tax or duty has specific rules on penalties for late payment or filing. A penalty may also be accrued if you do not tell HMRC about a liability to tax at the right time. You may be charged a penalty if your return or other tax document was inaccurate and tax has been                                

  • unpaid
  • understated
  • over-claimed
  • under-assessed

Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability faced by you.

The HMRC may (or may have!) penalize(d) you under the following categories:

  • Failure to file/pay on time
  • Failure to Notify
  • Inaccuracies
  • VAT & Excise wrongdoing

Penalties for Failure to Pay/ File on time:

You must file your tax return or any other document, on time. A person will be liable to a penalty when they do not file their returns or other documents on time.  The penalties for failing to file on time currently only apply to filing obligations under:

  • Income Tax and Capital Gains Tax (CGT),
  • Bank Payroll Tax (BPT),
  • the Registered Pensions Scheme (RPS),
  • PAYE reported under Real Time Information – from 6 October 2014 for employers with 50 or more employees and 6 March 2015 for employers who have fewer than 50 employees,
  • the Construction Industry Scheme (CIS), and
  • Machine Games Duty (MGD),
  • Annual Tax on Enveloped Dwellings (ATED)
  • Stamp Duty Reserve Tax (SDRT), and
  • Soft Drinks Industry Levy (SDIL).

The law requires you to pay your tax, or tax which you are required to send to HMRC, on or before the due date. When a person fails to pay the full amount of tax by the due date, they may become liable to a penalty or penalties. The penalties for failing to pay on time applies to all of the above specified tax regimes as well.

If you find yourself faced with HMRC Tax Penalties, look no further as we provide urgent advice and representation to clients from our unique expert team of established Tax and Duties specialist solicitors and barristers with a proven track record of delivering authoritative results.

Caution for Travellers and Traders!

If you’re a traveler or a trader, you may find yourself faced with these penalties resulting from an HM Revenue & Customs investigation:

  • a potential smuggling offence by a traveler or a trader; or
  • fraudulent declarations and dishonest claims for repayment of duty or relief from duty under their civil evasion penalty procedure.

These provisions apply to individual travellers, commercial importers and exporters or their agent or representative. The investigation is conducted with a view to the imposition of a civil evasion penalty for dishonest conduct, if HMRC suspicions are confirmed. It is not being conducted with a view to your prosecution for evasion of customs taxes or duties. The civil evasion penalty regime is an alternative procedure to criminal proceedings. However, the HMRC reserves complete discretion to conduct a criminal investigation in any case and to carry out these investigations across a range of offences and in all the areas for which the Commissioners of HMRC have responsibility.

What is a penalty for ‘Failure to Notify’?

If you don’t tell HMRC when changes happen that affect their liability to tax, VAT, or other duties, you may face a penalty. This is known as a ‘failure to notify’ penalty.

This penalty may occur, for example if your client doesn’t tell HMRC, at the right time, that:

  • they are liable to tax because their new business has made a profit;
  • their company is liable for Corporation Tax;
  • their business turnover has reached the VAT registration threshold;
  • they sell an asset and make a capital gain on which tax should be paid;
  • they start a type of business that must register with HMRC- for example a business that will charge Excise Duty; or
  • their circumstances change in a way that affects their tax position.
  • This penalty is calculated in a similar way to the inaccuracy penalty- see the section above for more information. HMRC can also reduce it if your client tells them about the failure.


Penalties for Inaccuracy

These penalties can be charged if there are errors on returns or other documents which understate or misrepresent the tax due, or if the assessment by the HMRC is lower than the actual chargeable tax and you fail to notify the HMRC, this is called an ‘inaccuracy penalty’.

From 1 April 2010, this inaccuracy penalty applies to the following taxes and duties:

  • Betting and Gaming duties;
  • Capital Gains Tax;
  • the Construction Industry Scheme;
  • Corporation Tax;
  • Environmental taxes;
  • Excise Duties;
  • Income Tax;
  • Inheritance Tax;
  • Insurance Premium Tax;
  • National Insurance contributions;
  • PAYE;
  • Petroleum Revenue Tax;
  • Stamp Duties; and

You need to ensure that the documents sent to HMRC by you or on your behalf have been reviewed and vetted as you may be charged a penalty by the HMRC if your sent documents contain errors due to lack of ‘reasonable care’, are deliberate (eg. Intentionally submitting information known/believed to be wrong), and for concealment of any deliberate errors. The calculation of the level of the penalty is linked to the reason behind the error. The more serious the reason, the higher the maximum penalty can be. HMRC can reduce the penalty if you or your client help them to put things right.

What Is Reasonable Care?

An inaccuracy that is careless incurs a penalty. The law HRMC Compliance Handbook defines ‘careless’ as a failure to take reasonable care.  Every person must take reasonable care, but ‘reasonable care’ cannot be identified without consideration of the particular person’s abilities and circumstances. HMRC recognises the wide range of abilities and circumstances of those persons completing returns or claims as your individual circumstances may be starkly different than that of others. However, it must be noted that you have a responsibility to take reasonable care; to do what is necessary to discharge this responsibility has to be viewed in the light of that person’s abilities and circumstances, individually.

How the inaccuracy penalty is calculated

If a penalty arises because of a lack of reasonable care, the level of the penalty will depend on the amount of the extra tax due and the reasons for the error.

  • If the error is careless, the penalty will be between 0 and 30% of the extra tax due.
  • If the error is deliberate, the penalty will be between 20 and 70% of the extra tax due.
  • If the error is deliberate and concealed, the penalty will be between 30 and 70% of the extra tax due.


What is a VAT and Excise wrongdoing penalty

From 1 April 2010 HMRC will charge a penalty known as a wrongdoing penalty if you:

  • make an unauthorised issue of an invoice showing or including VAT
  • misuse a product so that a higher rate of excise duty is payable, or
  • handle goods subject to unpaid excise duty. *This penalty applies to anyone registered for VAT or Excise, anyone who should be registered to pay VAT or Excise Duty and to other members of the general public.*

The amount of the penalty is a percentage of the VAT shown on, or included in, the invoice or the extra excise duty due, or Landfill tax due. The percentage is determined by the behaviour that led to the wrongdoing – higher penalties are payable if the act was deliberate or deliberate and concealed.

This penalty is calculated in a similar way to the inaccuracy penalty. HMRC can also reduce it if you tell them about the wrongdoing.

How Can I Reduce my HMRC Penalties?

Yes, you may very well be able to reduce your due penalties provided you have the right legal counsel to walk you through the process. At Lexlaw, after attaining years of experience in dealing with tax disputes with the HMRC, our specialist tax solicitors ensure the best results for our clients and the penalty can help reduce your penalties to the HMRC by assisting you in disclosure to the HMRC. The penalties may be reduced by:

  • Informing HMRC about the errors;
  • Assisting the HMRC calculate what extra tax is due; and/or
  • Providing access to the HMRC to check the figures.

What is a Special Reduction?

The Finance Act of 2007 and subsequent Finance Acts provide the HMRC with a discretion to reduce penalties if the HMRC takes the view that under the individual’s circumstances it is right because of special circumstances. This is called special reduction. Making a special reduction of a penalty includes:

  • staying a penalty, and
  • agreeing a compromise in relation to proceedings for a penalty.

Staying a penalty means stopping or postponing enforcement of a penalty. Agreeing a compromise allows the HMRC to forego all or part of a penalty. If special reduction is not considered at any stage there is a risk that the tribunal finds HMRC’s decision to be flawed and substitutes their own decision in its place.

Can I Appeal my HMRC Penalties?

If you have incurred a penalty, the HMRC issues a penalty assessment. You can appeal and are entitled to a review. Where the HMRC is unable to resolve an appeal on internal review, or if the taxpayer chooses to bypass the review process, the tribunal will hear the appeal. The HMRC can also agree to a special reduction of the penalty where there are special circumstances.

If you need HMRC Penalty Dispute advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations. Our team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation.

Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability

Have you been unfairly charged a penalty by HMRC? Our Tax Disputes professionals are here to help and are able to provide clear advice and information to assist you. We regularly negotiate and defend the application of penalties on behalf of our clients. Just call us on 0207 1830 529, or email [email protected].


Want legal advice from Tax Solicitors on your case?

Our simple enquiry form goes immediately to our tax litigators in Middle Temple, London. Call us on +442071830529 from 9am-6pm.


Please note that if you have been warned about your file being passed to HMRC’s Solicitor’s Office or have been served a statutory demand or winding-up petition do not delay in taking legal advice. Your matter can be handled more effectively the sooner you contact us.

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