HMRC penalty appeals: more negotiable than they look

Which HMRC penalties can be appealed?

The penalties HMRC most often charges each carry a right of appeal in the legislation that imposes them:

• Self Assessment late filing and late payment penalties (Schedules 55 and 56 to the Finance Act 2009)
• Corporation Tax late filing penalties (paragraphs 17 and 18 of Schedule 18 to the Finance Act 1998)
• PAYE late filing and late payment penalties (also Schedules 55 and 56)
• VAT penalty points, £200 late submission penalties and late payment penalties (Schedules 24 and 26 to the Finance Act 2021), which also apply to Making Tax Digital for Income Tax from the year someone joins
• penalties for errors in a return (Schedule 24 to the Finance Act 2007) and for failing to notify HMRC that tax is due (Schedule 41 to the Finance Act 2008)

You can appeal against the decision that a penalty is payable and, in most cases, against its amount. For a penalty on an error you can also appeal against a refusal to suspend it or the conditions of a suspension, and under the points-based regime you can appeal against a point as well as a penalty.

The 30-day time limit

An appeal normally has to reach HMRC within 30 days of the date on the penalty notice. HMRC counts from the date the notice is issued, not the date it arrives. For VAT penalties, the 30 days are for accepting the review offered in the letter or appealing to the tribunal. A missed deadline is not necessarily the end of the matter; see late appeals, below.

How to appeal a Self Assessment penalty

If a Self Assessment penalty notice has arrived for a late return or payment, GOV.UK has a tool that checks whether and how it can be appealed. It leads either to anonline appeal or to the paper form: SA370 for an individual, or SA371 for a partnership. Without an appeal form, GOV.UK says to send a signed letter to the HMRC office dealing with the return, explaining why the return or payment was late, with dates, your name and your Unique Taxpayer Reference.

The SA370 appeal form

The two-page SA370 asks for:

• the penalties being appealed (the £100 initial penalty, the 3, 6 and 12-month late filing penalties, and the late payment penalties at 30 days, 6 months and 12 months), with the amount and date of each penalty notice
• the tax year, and the tax reference shown on the penalty notice
• the reason, chosen from a list (illness, postal problems, fire, flood or natural disaster, theft or crime, bereavement, IT difficulties, not receiving the return, or another excuse) and described, with dates and, where possible, evidence
• a signature, and the capacity you sign in if appealing for someone else

The form also tells you to send the return and pay any tax owed now, if you have not already, to stop further penalties.

What to include

GOV.UK says you will need the date the penalty was issued, the dates the return was filed and the tax paid, and the details of the excuse. An appeal is easiest to assess as a timeline: what happened, when it started, how it stopped you filing or paying, when it ended, and when you put things right. HMRC’s guidance asks people to explain not only what the excuse was but how it affected their ability to comply.

Check the penalty itself first

HMRC’s guidance accepts that it has to show, with evidence, that a penalty is due before any question of excuse arises. So check:

• Was a return needed at all? If not, ask HMRC to cancel the penalty on that basis. HMRC can withdraw a notice to file and cancel the penalties with it, but generally only within two years after the end of the tax year, and not once a return has been filed.
• Are the dates right? Compare HMRC’s record with your own.
• Were daily penalties properly charged? The £10 daily penalties after three months apply only if HMRC decided to charge them and gave notice of the date they run from.
• Was a 6 or 12-month penalty based on an estimate? If the real liability is lower, HMRC can amend the penalty.

What happens after you appeal

If HMRC does not change its decision, it will offer a review, covered below. Our guide to late filing penalties and penalty points sets out how the penalties build up.

What counts as a reasonable excuse for HMRC?

For late filing, late payment and failure to notify penalties, and for penalty points, there is no penalty if you had a reasonable excuse. The rule is in paragraph 23 of Schedule 55 and paragraph 16 of Schedule 56 to the Finance Act 2009, paragraph 20 of Schedule 41 to the Finance Act 2008 (for failures that were not deliberate), and paragraph 19 of Schedule 24 and paragraph 12 of Schedule 26 to the Finance Act 2021. It does not apply to a penalty for an error in a return, where the question is instead whether you took reasonable care.

The law does not define a reasonable excuse, and HMRC’s guidance accepts that each case turns on its facts and on the person’s own abilities and circumstances. The leading authority is Perrin v HMRC [2018] UKUT 156 (TCC), in which the Upper Tribunal said the test is whether what the taxpayer did, failed to do or believed was objectively reasonable for that taxpayer in those circumstances.

Reasonable excuse examples from HMRC

GOV.UK gives examples of what may count, including:

• the death of a partner or close relative shortly before the deadline
• an unexpected stay in hospital, or a serious or life-threatening illness
• a computer or software failure while preparing an online return
• problems with HMRC’s online services
• a fire, flood or theft that prevented the return being completed
• postal delays that could not have been predicted
• delays related to a disability or mental illness
• being unaware of, or misunderstanding, a legal obligation
• relying on someone else to send the return, when they did not

The last two are not automatic. HMRC’s guidance says whether someone could be expected to know of an obligation depends on the person and the obligation, and that someone facing an unfamiliar transaction is normally expected to find out its tax consequences.

What HMRC does not accept

GOV.UK says HMRC will not accept a payment that failed for lack of money, finding the online system too difficult, not receiving a reminder, or a mistake on the return. Its internal guidance adds that pressure of work and lack of information will not normally be enough on their own.

Relying on an accountant or agent

The legislation says relying on another person is not a reasonable excuse unless you took reasonable care to avoid the failure. Handing a return to an accountant who then misses the deadline is not, by itself, an excuse. HMRC expects the person to have explained what was needed, set deadlines and checked on progress. Its examples of reliance that may qualify include an agent’s illness or bereavement with no realistic time to make other arrangements, and delays in getting papers from a previous adviser.

Lack of money

An insufficiency of funds is not a reasonable excuse unless it was caused by events outside your control. HMRC’s guidance accepts that the cause of a shortage, such as a sudden loss of expected income that could not reasonably have been foreseen, can be an excuse where the person acted promptly. Where the difficulty is simply paying, HMRC expects contact and, where appropriate, a payment plan; see HMRC Time to Pay arrangements.

The excuse has to cover the whole delay

HMRC’s guidance says the excuse must exist by the deadline and last throughout the period of default. The legislation adds that once the excuse ends, you are treated as still having it only if the failure is put right without unreasonable delay. An illness that ended in March does not, on its own, explain a return filed in September.

Special reduction for special circumstances

Separately, HMRC can reduce a penalty if it thinks it right because of special circumstances (paragraph 16 of Schedule 55 and paragraph 9 of Schedule 56 to the Finance Act 2009, paragraph 11 of Schedule 24 to the Finance Act 2007, paragraph 14 of Schedule 41 to the Finance Act 2008, and paragraph 13 of Schedule 26 to the Finance Act 2021). The legislation rules out ability to pay, and one taxpayer’s underpayment being balanced by another’s overpayment.

HMRC’s guidance says special circumstances are matters the penalty rules do not otherwise provide for, so not a reasonable excuse, and that the size of a penalty is not enough on its own. They can exist where applying the penalty strictly would defeat the compliance purpose of the law. The tribunal can depart from HMRC’s decision on special reduction only if it was flawed in the judicial review sense, so the case is best made fully to HMRC at the start.

Penalties for errors and failure to notify: three separate arguments

Penalties for an error in a return (Schedule 24 to the Finance Act 2007) and for failing to tell HMRC that tax was due (Schedule 41 to the Finance Act 2008) are a percentage of the tax at stake. People tend to treat the result as a single number to accept or dispute. It is usually better understood as three questions, each of which can be argued on its own.

1. Which behaviour applies

The penalty range depends on whether HMRC treats the inaccuracy as arising despite reasonable care, from carelessness, or from deliberate conduct, concealed or not (paragraph 3 of Schedule 24). Where reasonable care was taken there is no penalty. The difference between categories is substantial, and the category HMRC opens with is not always the one the facts support. You are not liable for an agent’s error if you took reasonable care to avoid it (paragraph 18). A failure to notify that was not deliberate carries no penalty if there was a reasonable excuse.

2. The reduction for quality of disclosure

Within the range, HMRC must reduce the penalty to reflect the quality of the disclosure (paragraphs 9 and 10): telling HMRC about the inaccuracy, helping it quantify the tax, and giving access to records. Whether the disclosure was prompted orunprompted sets how low the penalty can go, and is itself arguable: a disclosure is unprompted if made when there was no reason to believe HMRC had discovered, or was about to discover, the inaccuracy. Our HMRC penalty calculator shows how the range and the reduction combine.

3. Whether the penalty can be suspended

A penalty for a careless inaccuracy can be suspended for up to two years, against conditions that would help avoid further careless inaccuracies (paragraph 14). If the conditions are met, the penalty is cancelled. Suspension is not available for deliberate conduct, and there is no equivalent for a failure to notify.

What the tribunal can change

You can appeal against the penalty, its amount, a refusal to suspend it and the conditions of a suspension (paragraph 15); for a failure to notify, against the penalty and its amount. On an appeal against the amount the tribunal can substitute any decision HMRC had power to make, so behaviour and the disclosure reduction are open in full. But it can change a special reduction, order a suspension or vary its conditions only if HMRC’s decision was flawed in the judicial review sense (paragraph 17), which is why suspension should be asked for properly at the time. Our guide to penalties for careless and deliberate errors sets out the ranges.

How to appeal a Corporation Tax late filing penalty

A company that misses the filing date for its Company Tax Return is liable to a flat-rate penalty under paragraph 17 of Schedule 18 to the Finance Act 1998. The Finance Act 2026 doubled the amounts for returns with a filing date on or after 1 April 2026: £200if the return is delivered within three months after the filing date and£400 if later, rising to £1,000 and £2,000 where the company was also liable to a flat-rate penalty for each of the two previous accounting periods. For earlier filing dates the amounts were £100, £200, £500 and £1,000.

A tax-related penalty can follow under paragraph 18. If the return is still outstanding 18 months after the end of the accounting period (or at the filing date, if later), the penalty is 10% of the tax then unpaid, or 20% if the return is not delivered within two years after the end of the period.

GOV.UK says a company with a reasonable excuse can appeal online. The form must be completed in one go, then printed and posted to the address on it, and the return must be filed before the appeal. You will need the company’s Unique Taxpayer Reference, the date and amount of the penalty, the end date of the accounting period and an explanation of why the return was late. The usual 30-day limit applies.

PAYE late filing and late payment penalties

Late Full Payment Submissions. A penalty arises for each tax month in which a submission is late (paragraph 6C of Schedule 55). Regulation 67I of the PAYE regulations sets it by the number of employees: £100 for 1 to 9, £200 for 10 to 49, £300 for 50 to 249 and £400 for 250 or more. The first month in each tax year with a late submission is normally not penalised, and nor are a new employer’s first 30 days. HMRC also says it will not charge where a submission arrives within three days of payday, though it may look at employers who do this regularly. If a return is more than three months late, HMRC can add 5% of the tax that should have been shown on it.

Late payments. The first late payment in a tax year is not counted (paragraph 6 of Schedule 56). After that, each late payment attracts a percentage of the amount paid late, rising with the number of defaults in the year from 1% to 4%. An amount still unpaid after six months attracts a further 5%, and another 5% after twelve.

Appealing. GOV.UK says employers can appeal online through HMRC’s PAYE for employers service, by choosing “Appeal a penalty”, or in writing, quoting the unique ID of each penalty from the notice. HMRC’s listed grounds include incorrect data on the returns, having filed or paid on time, having no employees or no payments to them, and a Time to Pay arrangement already being in place. For wider employer checks, see PAYE investigations.

VAT and Making Tax Digital penalty points

For VAT periods starting on or after 1 January 2023, and for income tax from the year someone joins Making Tax Digital, a late return earns a penalty point rather than a fixed fine, and reaching the threshold brings a £200 penalty. Late payment penalties are charged separately. Our guide to HMRC penalty points sets out the thresholds and rates. For an appeal:

• A point can be appealed, not only a penalty (paragraph 22 of Schedule 24 to the Finance Act 2021).
• An appeal against a £200 penalty can reopen the points behind it. The tribunal can cancel any of them, even if the time for appealing against them has passed, unless a point was upheld on an earlier appeal. For income tax, an HMRC review of the penalty can do the same.
• For VAT, the penalty letter offers a review, with 30 days to accept it or appeal to the tribunal. GOV.UK says the review can be requested through the VAT online account.

Reasonable excuse applies to points and penalties alike, and HMRC can make a special reduction to a late payment penalty.

Missed the 30 days? Late appeals

For direct tax penalties, an appeal can still be made late if HMRC agrees or, failing that, the tribunal gives permission (section 49 of the Taxes Management Act 1970). HMRC must agree if you ask in writing, had a reasonable excuse for not appealing in time, and asked without unreasonable delay once that excuse ended. For VAT, a late appeal to the tribunal needs the tribunal’s permission. A late appeal should go in, with the reasons for the delay, as soon as the missed deadline is noticed. Our guide to appealing an HMRC decision explains how the tribunal approaches permission.

Statutory review and the First-tier Tribunal

For direct tax penalties the appeal goes to HMRC first. Under sections 49A to 49I of the Taxes Management Act 1970:

• if HMRC offers a review, you have 30 days from its letter to accept or go to the tribunal; if you do neither, the appeal is settled on HMRC’s view
• you can ask for a review at any time after appealing, unless one has been offered or the appeal is with the tribunal
• the review is by an officer not involved in the decision, can uphold, vary or cancel it, and must conclude within 45 days unless another period is agreed
• after the review, you have 30 days from the conclusion letter to go to the tribunal, and after that you need its permission

The First-tier Tribunal (Tax Chamber) is independent of HMRC. HMRC’s guidance says appeals against fixed penalties for filing a Self Assessment or company tax return late are normally decided on the papers, although either side can ask for a hearing. Our guide to reviews, ADR and the tribunal covers each stage in detail.

Do you have to pay a penalty while you appeal?

Usually not. For Self Assessment and PAYE penalties, error and failure to notify penalties, and penalties under the Finance Act 2021 points and late payment regimes, the legislation says the appeal rules do not require payment before the appeal is decided. GOV.UK says the same of appealed direct tax penalties generally, and that for VAT penalties HMRC will not ask for payment during a review or tribunal appeal.

Paying can still make sense. For a Self Assessment penalty, GOV.UK points out that if the appeal fails, interest runs on the penalty from its due date, and if it succeeds, HMRC repays what was paid with interest. The tax itself is separate: appealing a penalty does not stop the tax being due, and late payment interest on it is not a penalty, so the reasonable excuse rules do not touch it.

Companies House penalties are not HMRC penalties

A penalty for filing a company’s annual accounts late comes from Companies House. It is a civil penalty under section 453 of the Companies Act 2006, set by regulations according to how late the accounts were and whether the company is private or public. It is appealed to Companies House through its online service, and the HMRC rules on this page do not govern it. GOV.UK says the usual grounds are unexpected circumstances close to the deadline, such as serious illness or a death, or an error by Companies House.

What we do

• Identify which penalty regime applies, and the real appeal deadline
• Check the penalty is due at all: the dates, the notices and whether a return was needed
• Build the reasonable excuse case as a dated timeline, with the evidence behind it
• Ask for special reduction where the circumstances support it
• For penalties on errors, test the behaviour category, present the disclosure against telling, helping and giving, and request suspension where it is available
• Make late appeals with the reasons for the delay set out
• Take the matter through statutory review, and to tribunal where that is right

Further reading

• HMRC penalty calculator: the range the law allows for an inaccuracy or failure to notify penalty
• HMRC penalty points, late filing fines and how to appeal
• HMRC penalties for careless and deliberate errors
• How to appeal an HMRC decision: review, ADR and the tribunal
• HMRC Time to Pay arrangements
• HMRC’s deliberate tax defaulters list
• How far back can HMRC investigate?