HMRC Penalties Explained: The Real Cost of Missing Deadlines (2024/25 Guide)
Nobody wakes up thinking "I'll miss my tax deadline today." Yet thousands of UK taxpayers and businesses face HMRC penalties every year—not because they're trying to dodge taxes, but because they didn't know the rules had changed.
If you've received a penalty notice from HMRC (or you're worried you might), this guide breaks down exactly what you'll pay, when penalties kick in, and crucially—how to avoid them altogether.
The New Penalty System: What Changed in 2023
HMRC overhauled their penalty regime for VAT (from January 2023) and is rolling out similar changes for Income Tax Self Assessment. The old "fixed penalty" system is being replaced with something more nuanced—but potentially more expensive if you're a repeat offender.
Self Assessment Penalties: Day-by-Day Breakdown
Let's say your Self Assessment deadline was 31 January 2025. Here's what happens if you miss it:
| When | Penalty | Details |
|---|---|---|
| Day 1 (1 Feb 2025) |
£100 | Automatic penalty. Even if you owe zero tax. |
| Day 91 (3 May 2025) |
£10/day | Up to £900 maximum (90 days) |
| Month 7 (31 July 2025) |
5% or £300 | Whichever is greater, of the tax owed |
| Month 13 (31 Jan 2026) |
Another 5% or £300 | Additional penalty on outstanding tax |
Real Example
Sarah filed her 2023/24 return on 15 March 2025, owing £5,000.
Her penalty breakdown:
- £100 late filing penalty
- £430 daily penalties (43 days × £10)
- Plus interest on late payment
Total penalty: £530 before even considering late payment charges on the £5,000 tax bill.
VAT Penalties: The Points System Explained
The new VAT system works like penalty points on a driving licence. Miss deadlines, accumulate points, hit the threshold—pay penalties.
Your Points Threshold
- Annual filers: 2 points = penalty
- Quarterly filers: 4 points = penalty
- Monthly filers: 5 points = penalty
Each missed deadline = 1 point. Points expire after 24 months of compliance.
When You Hit the Threshold
£200 penalty immediately, then another £200 for each additional late submission while at threshold.
VAT Late Payment Penalties
- 15 days late: 2% of outstanding VAT
- 31 days late: Another 2%
- Over 31 days: 4% annual interest on the outstanding amount
Corporation Tax: The Hidden Penalty Most Directors Miss
Corporation tax is different. The payment deadline is typically 9 months and 1 day after your accounting year-end. The filing deadline is 12 months after year-end.
Miss the Payment Deadline
Interest starts immediately (currently 7.75% per annum as of late 2024). No fixed penalty—just compounding interest that adds up fast.
Director's Example
Company year-end: 31 March 2024
Payment due: 1 January 2025
Corporation tax owed: £20,000
If paid 3 months late (1 April 2025):
Interest charge: ~£387.50
That's money you can't claim back, even if you had a good reason for being late.
Miss the Filing Deadline
| How Late | Penalty |
|---|---|
| 1 day late | £100 |
| 3 months late | Another £100 |
| 6 months late | 10% of the tax due (HMRC estimates) |
| 12 months late | Another 10% (or 20% if deliberate) |
CIS Penalties: What Contractors Need to Know
Construction Industry Scheme (CIS) returns must be filed monthly, by the 19th of each month following the tax month end.
Late Filing
- First late return in tax year: £100
- Second late return: £200
- Third and subsequent: £300 each
⚠️ The CIS Trap
Even if you haven't paid any subcontractors that month, you still need to file a nil return. Miss it, and the penalties stack up quickly—£600 in penalties by your third missed return in a single tax year.
Payroll (PAYE) Penalties: Real-Time Information Rules
Every time you pay employees, you must submit a Full Payment Submission (FPS) to HMRC on or before the payment date.
The Penalty Structure
Penalties are based on the number of employees:
- 1-9 employees: £100 per month for late submissions
- 10-49 employees: £200 per month
- 50-249 employees: £300 per month
- 250+ employees: £400 per month
💡 Pro Tip for Small Employers
If you have fewer than 10 employees and this is your first payroll failure in the tax year, HMRC often doesn't issue a penalty. But don't count on this—it's discretionary, not guaranteed.
How to Appeal an HMRC Penalty
You have 30 days from the date of the penalty notice to appeal. HMRC will accept appeals based on "reasonable excuses," which include:
- Your partner or close relative died shortly before the deadline
- You had an unexpected hospital stay
- You had a serious or life-threatening illness
- Your computer or software failed just before the deadline
- Service issues with HMRC's online systems
- Fire, flood, or theft prevented you from meeting the deadline
- Postal delays that you couldn't have predicted
What HMRC Won't Accept
- Your accountant didn't remind you
- You were busy at work
- You didn't receive a reminder from HMRC
- You forgot about the deadline
- You couldn't afford to pay the tax (this doesn't excuse late filing)
How to Appeal
- Write to HMRC at the address on your penalty notice
- Explain your reasonable excuse with specific dates and evidence
- Show you fixed the problem as soon as you could
- Keep copies of everything you send
If HMRC rejects your appeal, you can escalate to an independent tax tribunal within 30 days of their decision.
5 Ways to Avoid Penalties Altogether
1. Set Multiple Reminders
Don't rely on HMRC to remind you. Set calendar alerts for:
- One month before the deadline
- One week before
- The day before
2. File Early, Even If You Can't Pay
Filing on time (even if you can't pay the full amount) avoids late filing penalties. You'll only face late payment charges, which are typically lower.
3. Set Up a Time to Pay Arrangement
If you know you'll struggle to pay on time, contact HMRC before the deadline. They're often willing to set up payment plans that can reduce or eliminate penalties.
4. Use Accounting Software
Making Tax Digital (MTD) requires digital record-keeping for VAT, and it's coming for Income Tax. Software like Xero, QuickBooks, or FreeAgent automatically reminds you of deadlines and can file directly to HMRC.
5. Hire a Professional
A qualified accountant or tax advisor handles deadlines for you and can represent you if things go wrong. The cost of professional help is almost always less than the penalty for getting it wrong.
What If You've Already Missed the Deadline?
Don't panic. Here's your action plan:
- File or pay immediately – Every day counts, and penalties escalate
- Calculate your likely penalty using HMRC's online calculator or a professional tool
- Gather evidence if you have a reasonable excuse
- Submit your appeal within 30 days of receiving the penalty notice
- Set up a payment plan if you can't pay everything at once
Key Deadlines for 2024/25
| Tax Type | Deadline | What's Due |
|---|---|---|
| Self Assessment (paper) | 31 October 2024 | 2023/24 tax return |
| Self Assessment (online) | 31 January 2025 | 2023/24 tax return and payment |
| VAT (quarterly) | 1 month + 7 days after quarter end | Filing and payment |
| Corporation Tax (payment) | 9 months 1 day after year-end | Payment of tax |
| Corporation Tax (filing) | 12 months after year-end | CT600 tax return |
| CIS Returns | 19th of each month | Previous month's return |
| PAYE (monthly) | 22nd of each month | PAYE and NI payment |
The Bottom Line
HMRC penalties have become more complex but also more avoidable. The new points-based systems give you some breathing room for occasional mistakes, but they punish repeated failures more heavily than ever.
The golden rules:
- File on time, even if you can't pay – it dramatically reduces penalties
- Communicate with HMRC early – they're surprisingly reasonable if you approach them before deadlines pass
- Keep detailed records – you'll need them if you need to appeal
- Use technology – let software handle the reminder and calculation work
- Get professional help – penalties often cost more than an accountant's fees
Remember: HMRC's penalty system is designed to encourage compliance, not to punish honest mistakes. If you have a genuine reason for being late, appeal. If you're simply overwhelmed by tax obligations, get help before penalties start piling up.
Need Help?
If you're facing HMRC penalties or want to ensure you never miss a deadline again, speak with a qualified tax professional. The right support can save you thousands in penalties and give you peace of mind.