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.
This guide tells you about Corporation Tax penalties but if your company or organisation does not meet its responsibilities for other taxes and duties, further penalties may also arise. Guidance on those penalties can be found on the HMRC website under the specific tax or duty - for example Employers' PAYE or VAT.
On this page:
HMRC expects you to take 'reasonable care' over your company or organisation's tax affairs. If you took reasonable care but still made a mistake, HMRC may not charge a penalty or the amount of the penalty may be reduced. Examples of reasonable care include:
If you discover you've made a mistake, or not told HMRC something you should have, you should tell them immediately. This may reduce the amount of penalty you face or may mean you don't have to pay one at all. What reasonable care means will depend on your company or organisation's individual circumstances.
Read more about taking reasonable care
If you don't agree with a penalty HMRC has charged your company or organisation, you can appeal it.
Appealing against an HMRC Corporation Tax decision
Deadlines and requirements 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. 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.
How to tell HMRC your company or organisation is active
Where the obligation to tell HMRC that your company or organisation is liable for Corporation Tax takes place on or after 1 April 2010, the penalty is based on the amount of tax that's unpaid or that your company or organisation is liable for. This is called the 'potential lost revenue' or 'PLR'.
But HMRC won't charge a penalty if you had a 'reasonable excuse' for not notifying them at the right time, provided that you did so promptly after the reason for not notifying them ended.
Further guidance on 'reasonable excuse' for failure to notify penalties
The amount of the penalty is calculated by applying a percentage to the amount of tax that you owe. The percentage applied depends on whether your error (or failure) was:
Whilst the maximum penalty HMRC can charge your company or organisation depends on the type of failure, it may be less it if you:
This table shows the maximum penalty for each type of failure.
| Type of failure | Maximum penalty payable |
|---|---|
| Non-deliberate | 30% of the potential lost revenue |
| Deliberate but not concealed | 70% of the potential lost revenue |
| Deliberate and concealed | 100% of the potential lost revenue |
Remember, if you took 'reasonable care' but still made a mistake, HMRC will not charge a penalty.
The penalty may also be less if you don't wait until HMRC takes action before you tell them about your error. For example before they write to you or raise an assessment.
Read about how a penalty can be reduced for disclosure
More on how a failure to notify penalty is calculated
For accounting periods ending before 1 April 2010, a different penalty process applies.
Read about the penalty process prior to 1 April 2010
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.
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.
If you don't file your Company Tax Return by the later of:
HMRC may charge your company or organisation further penalties from that date.
These penalties will be on top 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:
Here, the amount of unpaid Corporation Tax is the amount due that you didn't pay by the date your company first became liable to a tax-related penalty.
Deadlines and requirements for Corporation Tax
HMRC has changed the way penalties are charged for Corporation Tax errors.
The new penalties apply to errors in Company Tax Returns or other documents that cover accounting periods starting on or after 1 April 2008, and are due to be filed on or after 1 April 2009.
The penalty is a percentage of the extra tax due when HMRC corrects your mistake. This is known as 'potential lost revenue' or 'PLR'. The amount of penalty you'll face will fall into one of six ranges depending on the type of error and when you told HMRC about it.
The penalty will be less if you tell HMRC about your error before they find out about it - this is known as 'unprompted disclosure'. If you tell them after they found out about the error, or if you told HMRC because you thought they were about to find out, this is called 'prompted disclosure'.
You should:
| Type of error | Penalty range for unprompted disclosure | Penalty range for prompted disclosure |
|---|---|---|
| Careless | 0% - 30% | 15% - 30% |
| Deliberate but not concealed | 20% - 70% | 35% - 70% |
| Deliberate and concealed | 30% - 100% | 50% - 100% |
Remember, if you took 'reasonable care' but still made a mistake, HMRC will not charge a penalty.
How a penalty can be reduced for disclosure
Download an HMRC factsheet on penalties for inaccuracies (PDF 54K)
There are different rules for penalties where group relief, losses, repayments or accounting timing resulting in delayed tax are involved. There are also some differences where other penalties and surcharges arise.
Calculating penalties for inaccuracies - exceptions to the normal process
Read more about the interaction of penalties and surcharges
If you've made a 'careless' error - see earlier sections for a definition - HMRC may decide not to charge it immediately. Instead, they may 'suspend' the penalty for a period of time if you meet certain conditions they set to help you avoid a penalty in the future.
Read more about suspending penalties for careless errors
Download a factsheet on suspending penalties for careless errors (PDF 43K)
A different system for calculating penalties applied to errors in Company Tax Returns or other documents that covered accounting periods that started before 1 April 2008 or were due to be filed on or before 1 April 2009.
More on HMRC penalties for inaccuracies prior to 1 April 2009
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 serious cases - for example, where no records have been kept, records have been deliberately destroyed or your company or organisation has a history of failing to keep certain 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
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
HMRC compliance checks and enquiries for Corporation Tax
HMRC guidance on information and penalty powers for instalment payments
