Corporation Tax penalties
If your company or organisation is liable for Corporation Tax, and you don’t meet HM Revenue & Customs (HMRC) deadlines and requirements, then you may face a penalty.
If you've made an error, done something you shouldn't have, or not done something you should have, you must correct it immediately. If you do, you may not be charged a penalty or the penalty charged may be less.
On this page:
- How to avoid Corporation Tax penalties
- Penalties for not telling HMRC your company is liable for Corporation Tax
- Penalties for not filing your Company Tax Return on time
- Penalties for incorrect Company Tax Returns, documents and information
- Penalties if you don't keep sufficient records for Corporation Tax
- Penalties on instalment payments
- More useful links
How to avoid Corporation Tax penalties
The main things you need to do to avoid penalties are:
- Tell HMRC your company is active.
- Make sure your Company Tax Return is accurate and send it into HMRC on time. This includes making sure all company accounts, computations, claims and calculations are correct.
- If your company has profits chargeable to Corporation Tax but HMRC hasn't sent you a 'Notice to deliver a Company Tax Return', tell HMRC promptly - within 12 months of the end of your Corporation Tax accounting period.
- Keep sufficient records to support your Company Tax Return, company accounts and any claims to allowances and reliefs.
If you don't agree with a penalty HMRC has charged your company or organisation, you can appeal it.
Deadlines and requirements for Corporation Tax
Appealing against an HMRC Corporation Tax decision
Penalties for not telling HMRC your company is liable for Corporation Tax
If your company or organisation has Corporation Tax to pay but you don't receive a 'Notice to deliver a Company Tax Return' from HMRC, you still must tell HMRC it's liable for Corporation Tax. The easiest way to do this is to use HMRC form CT41G (New company details). You must do this within 12 months of the end of your Corporation Tax accounting period.
If you don't, your company or organisation may be charged a penalty. HMRC calls this a 'failure to notify' penalty.
Go to form CT41G (New company details) and explanatory notes
How much will you be charged?
The maximum penalty for failing to notify HMRC that your company or organisation is liable for Corporation Tax is an amount equal to the amount of Corporation Tax that remains unpaid 12 months after the end of your accounting period.
But the maximum penalty may be reduced to reflect the seriousness of the failure, your disclosure of it and how much you co-operate with HMRC to put it right.
Example
You calculate that your company owes £1,000 Corporation Tax and don't notify HMRC that your company is liable for Corporation Tax or pay within 12 months after the end of your Corporation Tax accounting period.
As you've not told HMRC your company is liable nor paid your Corporation Tax on time, HMRC may charge your company a penalty of up to £1,000 in addition to the £1,000 you owe in Corporation Tax.
Changes to HMRC's failure to notify penalty process
Penalties for not telling HMRC your company or organisation is liable for Corporation Tax are changing from 1 April 2010. The new process will apply for accounting periods ending on or after 31 March 2010.
This guidance will be updated to reflect the changes when they come into effect.
More about the changes to HMRC's failure to notify penalty process
Penalties for not filing your Company Tax Return on time
HMRC will normally send your company or organisation a letter telling you that you need to file a Company Tax Return. HMRC calls this letter a 'Notice to deliver a Company Tax Return'.
If HMRC has sent you this notice and you don't file your return on time, your company or organisation will be charged a penalty. HMRC may charge this penalty even if your company or organisation does not owe any Corporation Tax.
Automatic flat-rate penalties for late Company Tax Returns
If you file your Company Tax Return late, your company or organisation will be charged a flat-rate penalty of £100. HMRC will charge a further £100 penalty if you file your return more than three months late.
If your Company Tax Return is late for three or more accounting periods in a row, the initial flat-rate penalty increases to £500 with a further £500 charged if you file your return more than three months late.
Additional penalties for very late Company Tax Returns
If you don't file your Company Tax Return by the later of:
- 18 months from the end of your Corporation Tax accounting period
- your filing deadline
HMRC may charge your company or organisation further penalties from that date.
These penalties will be on of the flat-rate penalty or penalties you've already been charged. These additional penalties are known as tax-related penalties because they are related to the amount of Corporation Tax your company or organisation owes. They are calculated as follows:
- where a return is filed between 18 months and 24 months after the end of your company's accounting period: 10 per cent of any unpaid Corporation Tax
- where a return is still not filed 24 months after the end of your accounting period: a further 10 per cent of any unpaid Corporation Tax
Here, the amount of unpaid Corporation Tax is the amount due that you didn’t pay by the date your company became liable to the first tax-related penalty.
Deadlines and requirements for Corporation Tax
Penalties for incorrect Company Tax Returns, documents and information
HMRC may charge your company or organisation a penalty if you fraudulently or negligently file an incorrect Company Tax Return (including claims, computations, company accounts, statements or declarations).
If you discover that a return or other documentation you've already filed is incorrect and you don't correct the error without delay, HMRC will treat this error as negligence.
Here, fraud involves a deliberate intention to deceive. Negligence simply means a lack of reasonable care and does not require any intent.
The maximum penalty that HMRC can charge your company or organisation is the difference between the Corporation Tax due on your return and the correct amount. But again, the maximum penalty may be reduced to reflect the seriousness of the error, your disclosure of it and how much you co-operate with HMRC to put it right.
Example
Your Company Tax Return shows Corporation Tax due of £50,000 but you've forgotten to include a chargeable gain and the correct amount of tax due is £60,000. The maximum penalty HMRC can charge your company or organisation is £10,000 (£60,000 - £50,000).
The penalty HMRC actually charges your company will be a lot lower than this if you:
- tell HMRC up front about your mistake without a prompt
- tell HMRC about your mistake immediately when HMRC asks about it during an 'enquiry' and help HMRC work out the right amount of tax you should pay
Read more about HMRC penalties for incorrect returns, documents and information
Changes to the HMRC penalty system for Corporation Tax errors
HMRC is changing the way penalties are charged for Corporation Tax errors.
The new penalties will apply to errors in Company Tax Returns or other documents that cover Corporation Tax accounting periods starting on or after 1 April 2008 and are due to be filed on or after 1 April 2009.
HMRC may charge a penalty if you've made a careless or deliberate mistake in your return or other documents. The penalty will be a percentage of the extra tax payable (or not repayable) when HMRC corrects your mistake. It's linked to the reason why the error occurred - and can be reduced if you try to put things right.
But HMRC will not charge a penalty if you took reasonable care to get things right but still made a mistake.
Read more about the changes to penalties for Corporation Tax errors
Penalties if you don't keep sufficient records for Corporation Tax
Your company or organisation must keep sufficient business records to allow you to file a complete and accurate Company Tax Return.
If your company or organisation does not keep these records, it may be charged a penalty of up to £3,000. Generally HMRC only charges this type of penalty in very serious cases - for example, where records have been deliberately destroyed or your company or organisation has a history of failing to keep records.
Without proper records, it will also be very difficult to get your Company Tax Return right. So your company may also risk being charged penalties for filing an incorrect return.
Records for Corporation Tax: what you need to keep
Penalties on instalment payments
If your company’s profits for an accounting period are at an annual rate of more than £1.5 million, you must normally pay your Corporation Tax for that period in instalments.
HMRC may charge a penalty if you deliberately fail to make instalment payments, or deliberately make instalment payments that are too small.
Any penalty will be charged only after you’ve delivered your Company Tax Return (or HMRC has made a determination) and the normal due date has passed.
Read about penalties for late or deliberately understated instalment payments
More useful links
HMRC compliance checks and enquiries for Corporation Tax
HMRC guidance on information and penalty powers for instalment payments
