Did you know that over 1.1 million people missed the 31 January 2025 deadline for filing their Self Assessment tax return? If you were one of them or have ever missed a payment, you’re not alone. But penalties from HMRC can add up fast, even if you owe nothing.
This blog breaks down what happens when you’re late, what the penalties mean for your finances, and how to fix things before they spiral out of control. The bottom line? Don’t wait. Even a short delay can cost you hundreds or even thousands of pounds.
Why does filing and paying on time matter for small businesses?
If you’re self-employed or run a small business, tax deadlines are about more than ticking boxes. They’re about protecting your cash flow and credibility.
- Cash flow risks: Penalties are more than a slap on the wrist. A £100 fine here and a 5% surcharge there can seriously dent your budget, especially if you’re a startup or have tight margins.
- Reputation at stake: While HMRC doesn’t usually name and shame individuals, regular delays could draw unwanted scrutiny, and that could lead to an audit. It’s time-consuming, stressful, and can affect your business relationships.
- Legal requirement: Simply put, paying and filing on time is the law. Ignore deadlines, and it’s not just your wallet that’s at risk; serious cases can lead to legal consequences.
Penalties for late tax returns
HMRC doesn’t mess around when it comes to deadlines. And yes, even if you’ve paid all your taxes already, just missing the return deadline can still result in penalties.
- Miss the deadline = £100 fine
The initial fine is automatic and fixed: £100 for missing the 31 January online filing deadline (or 31 October for paper returns). This fine applies even if you don’t owe any tax. - Still late after 3 months? Daily charges apply
After three months, HMRC adds £10 per day to your bill for up to 90 days. That’s an extra £900 on top of the initial £100 fine. So, a simple mistake can quickly become a £1,000 problem. - Six months late = a further £300 or 5% of the tax owed
If you still haven’t filed six months after the deadline, you’ll be charged an additional £300 or 5% of your tax bill, whichever is higher. - Twelve months late = Another £300 or 5%
At the one-year mark, another penalty kicks in: again, either £300 or 5% of the tax owed, whichever is higher. In some cases, HMRC may charge up to 100% of the tax due.
Bottom line, if you delay sending your tax return, by the end of the year you will be facing a bill of £1,600 at a minimum – and you still have your tax to pay!
Penalties for late payment
HMRC has tightened the rules around late payments, and it’s important to understand what’s at stake. Whether it’s income tax, corporation tax, or any other kind, everyone has a legal obligation to pay by the due date. If not, there are now two types of penalties you could face.
Stage one: The first penalty
If you pay within 15 days of the deadline, you won’t be penalised. But after day 15, HMRC charges 2% of the unpaid tax. If it’s still unpaid on day 30, they’ll charge another 2% based on what was owed after day 15 and what remains due at day 30. In total, you could face a 4% charge by the end of the month.
Stage two: The ongoing daily penalty
If your tax bill is still not settled on day 31, a further penalty begins to build up. This is a daily charge, calculated at an annual rate of 4% on the remaining unpaid amount. This ongoing penalty continues to accrue every day until you finally pay the tax that is due.
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Can’t pay your tax bill? HMRC’s ‘Time-to-Pay’ could help
If you can’t pay your tax bill on time, HMRC offers a Time-to-Pay (TTP) arrangement. This lets you agree on a plan with HMRC to pay your outstanding tax in instalments.
When a TTP is set up, and you stick to the plan, it stops further penalties from building up from the day you arrange it. Here’s how proposing a TTP can affect penalties:
Days after payment due date | Customer action | Penalty outcome |
0-15 days | Pay in full or agree a payment plan (TTP) by day 15 | No penalty is payable |
16-30 days | Pay in full or agree a payment plan by day 30 | Penalty will be calculated at half the full percentage rate (2%) |
Day 30 days | Tax still unpaid and no payment plan agreed | Penalty will be calculated at the full percentage rate (4%) on the amount outstanding. |
If tax is still unpaid on day 31, an extra 4% annual penalty starts. So, arranging a TTP quickly can save you money.
How to appeal a penalty?
Got an HMRC penalty you think isn’t fair? You can appeal it. You usually have 30 days from the date on the penalty letter to do so.
For Self Assessment penalties (late annual tax returns)
First, make sure you’ve either filed your tax return or told HMRC you don’t need to. Then, you can usually appeal online through your Self Assessment account. If the penalty is older (before 2016-17) or you prefer paper, you can download Form SA370 and mail it.
For business tax penalties (like Corporation Tax or VAT)
If your business got a penalty for a late VAT or Corporation Tax return, use your business’s online HMRC account to appeal. Sometimes, you might need to fill out a specific online form (like for IT issues or a “reasonable excuse”), print it, and post it.
For PAYE penalties (for employers)
Employers appealing a penalty related to PAYE should use their online account on HMRC’s PAYE for Employers portal.
How a tax expert can help you avoid penalties?
A skilled accountant is your best defence against HMRC penalties. They ensure accurate filings, track all your deadlines, and navigate complex tax rules for you. By proactively managing your tax affairs, an accountant saves you valuable time, reduces stress, and often prevents costly mistakes, helping you stay compliant and focus on your business.
Conclusion
Missing tax deadlines can be costly, but you don’t have to let things spiral. Whether you’ve filed late, paid late, or both, the key is to act quickly. File the return. Call HMRC. Set up a payment plan. And if you’re unsure what to do, don’t guess. An expert tax adviser like Bradleys can help you navigate the process, avoid future penalties, and get back on track.
