Understanding HMRC Penalties
HMRC issues penalties for various compliance failures including late tax returns, incorrect filings, and unpaid taxes. This comprehensive guide walks you through the appeal process, helping you understand your rights and how to present the strongest case for penalty cancellation or reduction.
1. Common Penalties and Their Triggers
HMRC may impose penalties for:
- Late filing: £100 immediate penalty for Self Assessment returns, plus daily charges
- Late payment: 5% of tax due after 30 days, another 5% after 6 months
- Inaccuracies: Up to 100% of potential lost revenue for careless or deliberate errors
- Failure to notify: Penalties for not registering when you should have
- VAT defaults: Surcharge points for late submissions/payments
Penalties can quickly escalate, making timely action crucial.
2. Valid Grounds for Appeal
You may appeal if you have a "reasonable excuse" such as:
- Serious illness or hospitalization
- Bereavement of close family member
- Unexpected postal delays (with proof)
- Technical issues with HMRC online services
- Fire, flood or theft preventing compliance
- Reliance on incorrect HMRC advice (with evidence)
Note: Forgetfulness, lack of funds, or being too busy are not considered reasonable excuses.
3. The Appeal Process Step-by-Step
Step 1: Act Quickly
You typically have 30 days from the penalty notice to appeal. Late appeals may still be considered if you have good reason.
Step 2: Submit Your Appeal
Use form SA370 for Self Assessment, or the appeal form included with your penalty notice. Include:
- Your details and penalty reference number
- Clear explanation of your reasonable excuse
- Supporting evidence (medical notes, death certificates, etc.)
- Details of when the issue was resolved
Step 3: HMRC Review
HMRC will respond within 30 days, either:
- Accepting your appeal and canceling the penalty
- Offering a reduction based on circumstances
- Rejecting your appeal if they don't accept your excuse
Step 4: Further Options if Rejected
If HMRC rejects your appeal, you can:
- Request an internal HMRC review by a different officer
- Take your case to the First-tier Tribunal (Tax Chamber)
- Consider Alternative Dispute Resolution (ADR)
4. Preparing a Strong Appeal
To maximize your chances:
- Be honest and factual - don't exaggerate your circumstances
- Provide documentary evidence wherever possible
- Show you took reasonable steps to meet obligations
- Demonstrate you resolved the issue as soon as possible
- Keep copies of all correspondence
- Meet all deadlines for responses
5. Professional Help Options
Consider professional advice if:
- The penalty is substantial (over £1,000)
- You're accused of deliberate behavior
- Your case is complex
- Previous appeals have been rejected