Self Assessment Tax Return Penalties Explained

Have you received a fine or penalty from HMRC? Are you confused about how your self-assessment tax return penalties were worked out? When you’re self-employed, getting your tax return in on time can sometimes be a chore that’s easy to keep putting off. However, it’s vital to file it on time. If you don’t, then you could receive self assessment tax return penalties. To help you get through this financial hurdle, I’ve put together this guide where I explain how tax return penalties work, reasonable excuses for missing the tax return deadline and the appeals process.

Updated 29 September 2021

** HMRC has announced an extension to the filing deadline for 2022 as COVID continues to cause disruption. Taxpayers now have until 28 February to file their tax return without facing penalties, although interest on any unpaid tax will apply from 1 February 2022 as normal.

Friendly Disclaimer: Whilst I am an accountant, I’m not your accountant. The information in this article is legally correct but it is for guidance and information purposes only. Everyone’s situation is different and unique so you’ll need to use your own best judgement when applying the advice that I give to your situation. If you are unsure or have a question be sure to contact a qualified professional because mistakes can result in penalties.

1. How Do Tax Return Penalties Work?

If you do not fill in your tax return on time and miss the 31 January filing deadline, then HMRC will charge you with:

  1. Late filing penalties for failing to file your tax return. These will escalate until you do submit it;
  2. Late payment penalties for not paying any tax you owe, along with interest. Again, this will increase until you pay what you owe.

Both HMRC penalties and interest are calculated according to the number of days late and are added up cumulatively by HMRC until you file your return and pay what you owe.

2. HMRC Late Filing Penalties

HMRC late filing penalties for failing to file your tax return start at £100 and increase until the missing return is filed:

  • 1 day late: £100
  • 3 months late: £10 daily penalty per day up to a maximum of £900
  • 6 months late: 5% of tax owed or £300, whichever is greater
  • 12 months late: 5% of tax owed or £300, whichever is greater

3. HMRC Late Payment Penalties

In addition to the above, late payment penalties are charged for not paying any tax you owe. This is in combination with interest until you pay what you owe:

  • 30 days late: 5% of tax due
  • 6 months late: a further 5% of tax due
  • 12 months late: a further 5% of tax due

Once unpaid tax or outstanding tax returns go over 12 months, HMRC gets more serious and, in some cases, can demand that the taxpayer 100% penalties of the tax due. The approach they take will be based on their suspicions about the taxpayer and whether they think there is a genuine case for failing to file returns and pay any tax owed.

3.1 Example

It is 1 February 2021 and a taxpayer has not filed their return for 2019/2020 which was due 31 January 2021. They also owe £5,000 of self-employed tax. Here’s how the penalties will add up over the next 12 months if they file their tax return and pay outstanding tax on 1 February 2022:

  • On 1st February 2021: Automatic filing penalty of £100
  • On 30 April 2021 (3 months late): Late filing penalty £900 at £10 per day and unpaid tax penalty of £250
  • On 31 July 2021 (6 months late): Filing penalty of £300 and unpaid tax penalty of £250
  • On 31 January 2022 (12 months late): Filing penalty of £300

The total penalties for filing the return late are £1,600. Additionally, the penalties for late payment of tax come to £500 plus interest, currently estimated at £130.

If the missing return and tax payment were both sent to HMRC just one day earlier on 31 January, this would have avoided the twelfth month late penalty being charged. Therefore, saving £300, plus a small reduction on the interest on unpaid tax charged.

4. How to Check Your Tax Return Penalty

If you want to check a penalty you’ve been charged or estimate what will happen if you miss filing a tax return and paying your tax, then you can use the HMRC online calculator.

5. Reasonable Excuses for Missing the Tax Return Deadline

There is some good news in all of this! In some cases, HMRC may reduce or remove penalties they have charge if they agree you have a reasonable excuse for missing the tax return deadline.

5.1 What is a Reasonable Excuse?

  • your partner or close relative died shortly before the tax return or payment deadline;
  • you had an unexpected stay in hospital;
  • you had a serious or life-threatening illness;
  • your computer or software failed just before or while you were preparing your online return;
  • service issues with HMRC online services;
  • a fire, flood or theft prevented you from completing your tax return;
  • postal delays that you couldn’t have predicted;
  • delays related to a disability you have.

5.1 What is Not a Reasonable Excuse?

  • you relied on someone else to send your SA100 tax return and they didn’t (that includes an accountant);
  • your cheque bounced or payment failed because you didn’t have enough money;
  • you found the HMRC online system too difficult to use;
  • you didn’t get a reminder from HMRC;
  • you made a mistake on your tax return.

6. How to Appeal a Self Assessment Penalty

If you have a reasonable excuse, you’ll need to make an appeal to HMRC within 30 days of receiving your penalty notice. It is usually helpful to pay your penalty in the meantime because it stops HMRC applying any further charges if HMRC does not agree with your appeal.

7. Can You Go to Jail for Not Paying Taxes in the UK ?

In the most serious of cases of tax evasion, HMRC does have the right to send someone to prison for up to seven years and impose unlimited fines.

To conclude, if you have any self assessment tax return penalties, the best thing to do is to resolve it as quick as possible to reduce further increases in any fines.

Related:

Taxes are changing! From April 2024 sole traders will need to report their earnings and pay tax on a quarterly basis. This is known as Making Tax Digital, which you can read more about in this guide to help you get prepared.

About Anita Forrest

Anita Forrest is a Chartered Accountant, spreadsheet geek, money nerd and creator of www.goselfemployed.co - a website full of templates, guides and resources for UK sole traders. No faff. No confusion. Just simple straightforward advice on business registration, taxes and bookkeeping.