Penalties: an overview for agents and advisers
Find out about the different types of HMRC penalties and how you can help your clients avoid them.
Overview
It’s in everyone’s interest to avoid penalties. Understanding how HMRC penalties work can help you to help your clients avoid them.
Each tax or duty has specific rules on penalties for late payment or filing. A penalty can be due if your client does not tell HMRC about a liability to tax at the right time.
There are changes to VAT penalties and interest for accounting periods starting on or after 1 January 2023 for:
- VAT returns that are submitted late
- VAT which is paid late
Your clients may be charged a penalty if their return or other tax document was inaccurate and tax has been:
- unpaid
- understated
- over-claimed
- under-assessed
They can face a penalty if they do not tell HMRC that an assessment is too low. This guide gives an overview of penalties with links to more detailed information.
You and your client’s responsibility for penalties
When you are acting on behalf of a client, they still have responsibility for their returns, calculations and payments.
Your authorisation as an agent allows HMRC to deal with you on your client’s behalf, but any liability for penalties for late returns, late payments or any errors on paperwork legally remains with your client.
Penalties for late filing or late payment
Penalties for late filing of returns and paperwork or late payment differ according to which tax you are dealing with.
Self Assessment tax return deadlines and penalties
What counts as reasonable excuse when an online tax return is filed late
PAYE and National Insurance late payment penalties
PAYE penalties for late and inaccurate returns
Missed VAT deadlines for accounting periods starting on or after 1 January 2023
Missed VAT deadlines for accounting periods starting on or before 31 December 2022
Construction Industry Scheme (CIS) monthly returns
Capital Gains Tax for property Disposals
Penalties for errors on returns, payments and paperwork
Penalties can be charged if there are errors on returns or other documents which:
- understate the tax
- misrepresent the tax liability
Penalties can apply if your client does not tell HMRC if an assessment is too low. This type of penalty is known as an ‘inaccuracy penalty’ and 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
- VAT
If you or your client sends in a document that has a mistake, HMRC will charge a penalty if the error is:
- because of a lack of ‘reasonable care’
- deliberate — such as intentionally sending incorrect information
- deliberate and concealed — for example, intentionally sending incorrect information and taking steps to hide the error
The level of the penalty is linked to the reason why the error occurred. 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 ‘reasonable care’ means
Every individual or business is expected to keep records that allow them to give a complete and accurate return. HMRC also expects them to check with their agent, or HMRC, to confirm the correct position, if they are not sure.
However, ‘reasonable care’ is different for each client’s circumstances and abilities. For example, a client with relatively straightforward tax affairs may only need a simple system of record keeping that is regularly updated. A large business with complex tax affairs is expected to have a more sophisticated system that is well-managed.
Read Types of inaccuracy — What is reasonable care to find out more.
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 reasons for the error and the potential lost revenue. The potential lost revenue is an additional amount of tax which is due or payable as a result of correcting the inaccuracy.
For example, if:
- a penalty arises because of a lack of reasonable care, the penalty will be between 0% and 30% of the extra tax due
- the error is deliberate, the penalty will be between 20 and 70% of the extra tax due
- the error is deliberate and concealed, the penalty will be between 30 and 100% of the extra tax due
The penalty can be reduced if you or your client tells HMRC about the error. HMRC may make further reductions depending on the quality of the disclosure. Penalties can be reduced by:
- telling HMRC about the errors
- helping HMRC work out what extra tax is due
- giving HMRC access to check the figures
Read more about penalty calculations and potential lost revenue from the HMRC staff Compliance Manual.
Read the HMRC factsheet for the offshore penalty for more information.
Failure to notify penalty
If your clients do not tell HMRC when changes happen that affect their liability to tax, VAT, or other duties, they may face a penalty. This is known as a ‘failure to notify’ penalty.
A penalty may occur, for example if your client does not 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
- their circumstances change in a way that affects their tax position
This penalty is calculated on potential lost revenue which is based on the amount of tax or duty that is unpaid as a result of the failure to notify. HMRC can reduce the penalty if your client tells them about the failure. Further reductions may be made depending on the quality of disclosure in a similar way to the inaccuracy penalty. Read the section ‘How the inaccuracy penalty is calculated’ in this guidance for more information.
Read the detailed guidance about failure to notify penalties.
Offshore penalties
From 6 April 2011, HMRC can charge an increased penalty where an inaccuracy penalty, or a failure to notify penalty, arises and the income or asset that gives rise to the penalty is held outside of the UK. The penalty for failing to submit a return for 12 months can also be increased where offshore assets or income are involved. The level of the penalty depends on how readily the foreign jurisdiction shares information with the UK and only applies to Income Tax and Capital Gains Tax.
Read the HMRC leaflet on the offshore penalty.
VAT and excise wrongdoing penalty
From 1 April 2010, HMRC will charge a penalty known as a wrongdoing penalty if your client:
- issues an invoice that includes VAT which they are not entitled to charge
- handles goods on which excise duty has not been paid or deferred
- uses a product in a way that means more excise duty should have been paid
- supplies a product at a lower rate of excise duty knowing that it will be used in a way that means a higher rate of excise duty should be paid
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.
This penalty is calculated in a similar way to the inaccuracy penalty. HMRC can also reduce it if your client tells them about the wrongdoing.
Read the detailed guidance on the VAT and excise wrongdoing penalty.
Download an HMRC leaflet on the VAT and excise wrongdoing penalty (PDF 54K).
Helping your clients avoid penalties
As a tax agent and adviser, all of your actions will be geared towards avoiding problems and penalties.
You can give your clients more information about how the system works so they can consider if their record keeping arrangements and processes are adequate to produce accurate returns.
Read the following HMRC leaflet to find out more: New penalties for errors in tax returns and documents (PDF 38K).
It’s also a good idea to reinforce to your clients that if they have any questions about their tax and record keeping, they should check with you for advice.
You can get more information about how penalties work, from the HMRC staff Compliance Manual, which will continue to be updated.
Appealing late filing penalties for clients due to coronavirus (COVID-19)
Due to the impact of COVID-19 on individuals and businesses, we recognise that some customers and agents may have difficulty meeting their filing obligations.
HMRC has advised that COVID-19 may be accepted as a reasonable excuse for appeals made against a 2020 to 2021 late filing penalty for Self Assessment customers.
Last updated 13 January 2023 + show all updates
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Updated for changes to VAT penalties and interest that apply to accounting periods starting on or after 1 January 2023.
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Information about submitting a bulk appeal for late filing penalties, where COVID-19 has been claimed as a reasonable excuse has been removed.
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Guidance has been updated to state that COVID-19 may be a reasonable excuse for late filing of the 2020 to 2021 tax return.
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Guidance about how to bulk-appeal Late Filing Penalties due to coronavirus has been added.
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A link for Capital Gains Tax for property Disposals has been added to the Penalties for late filing or late payment section.
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First published.