How to appeal a tax penalty

HM Revenue and Customs (HMRC) can impose a penalty for various reasons, including submitting an inaccurate return, sending in your tax return late, paying tax late, failing to maintain adequate records, etc.

If you disagree with the penalty, you can appeal against it. The appeal route varies depending on whether the penalty pertains to a direct tax, like income tax, capital gains or corporate tax, or an indirect tax, like VAT.

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Table of content

What is an HMRC tax penalty?

A tax penalty is a charge levied after an assessment of taxation following an inaccuracy in the tax return or the failure to submit a return.

It is a regime designed to guarantee proper compliance with the tax legislation.

If you dispute a tax penalty, you need to ask HMRC to review it and justify why you think the penalty was assessed unfairly.

Reasons for HMRC tax penalty

There are several reasons why you could get a tax penalty.

You may already know why it took place, but if you aren’t sure why you have one, then here are some instances:

●   There were mistakes, or you offered incorrect data on your tax return.

●   You submitted your tax return late, after the due date.

●   You submitted your final tax bill late.

●   You have failed to submit proof or kept insufficient tax records.

To prevent any self-assessment-related tax penalties from HMRC for lateness, you must be registered and submit a self-assessment (for self-employed individuals who manage their taxes) by 5 October annually.

The due date for filing your tax return is 31 October for paperwork and 31 January for online returns.

You must have paid your taxation bill in full by 31 January to meet the due date.

In early 2021, HMRC stated that they wouldn’t issue any late fees as long as the tax return is submitted before the 28 February of each year, providing self-employed taxpayers an extra month to file.

However, the due date for paying the tax bill is still the 31 January, so if you choose to submit your return late, you’ll be charged interest from 1 February on the total tax bill you owe.

The fundamental civil tax penalties in the UK are:

●   There is no penalty if you take reasonable precautions – including telling HMRC if you discover an error.

●   Up to 30% if you were careless or didn’t work to send in a return.

●   70% if the mistake was intentional.

●   Up to 100% if you attempted to hide the intentional inaccuracy.

Appealing for different tax penalties in UK

1.     Direct tax penalties

If you receive a penalty in connection with a direct tax by post, the appeal letter will contain directions on how to appeal and a form that can be used.

An appeal has to be made within 30 days of the due date on the penalty notice.

If you miss the due date, you have to justify the explanation for doing so to HMRC so that it can determine whether to consider your appeal.

2.     Self-Assessment tax return penalty appeal

If you received an assessment penalty for failing to submit a tax return, you can cancel it by advising HMRC online or calling their helpline.

To challenge a late filing penalty, you’ll require:

●   the issued penalty date

●   the date you submitted your tax return

●   a reason for submitting late

For a £100 late submission penalty from 2015 to 2016 and beyond, you can file an appeal via the Internet with a Government Gateway account or by mail.

For other penalties, you must submit a completed form SA370 or a letter clarifying the appeal to HMRC Self-Assessment.

3.     Indirect tax penalties

Indirect tax penalties mainly revolve around taxes like VAT, posing serious difficulties for companies.

In the face of such consequences, you are provided with multiple choices.

Upon getting a penalty letter, you can request a review.

This review can be either accepted or questioned by the tax tribunal.

If you remain dissatisfied with the result, HMRC lets you request a review of the choices.

Usually, this review procedure takes 45 days, but it may take longer if there is more notice.

Suppose the evaluation still needs to align with what you were expecting. In that case, an alternative course is to appeal directly to the tax tribunal within a 30-day window, which permits an official and judicial review of the situation.

These routes offer recourse options for companies to contest, test, and rectify errors or disputes in indirect tax fees.

4.     PAYE penalties

If you are a business owner and get a PAYE penalty, you can log into your PAYE Online for Employers account to file an appeal using the ‘Appeal a penalty’ option.

You’ll get a prompt response to your appeal.

HMRC’s decision on your appeal

Once you file your appeal, HMRC will examine the data and decide. They will convey their choice to you in writing.

If HM Revenue and Customs upholds the penalty, you can request an appeal by an independent officer within one month. You can apply to the First-tier Tribunal (FTT) within one month.

Here is some advice for appealing HMRC’s decision to sustain your penalty:

●   Be concise and clear in your request for a review or appeal.

●   State why you disagree with HMRC’s decision and any additional proof.

●   Be patient and competent.

HMRC will choose an independent officer to investigate your case if you request a review.

The officer will look into your appeal and make an offer to HMRC. HMRC will then make its final choice on your appeal.

If you appeal to the FTT, the FTT will schedule an inquiry to hear your case. The FTT will then choose whether or not to uphold, modify, or withdraw the penalty.

Hire Tax advisor

Work with a UK-based accountant for tax, accounting, payroll, & EIS/ SEIS needs.

Have a question? Call us on
0203 900 3500
Monday to Friday 9am – 5pm

Final thoughts

Receiving a tax penalty from HMRC can be an intimidating situation.

If you find yourself facing one, possibly due to late filing, incorrect tax returns, delayed payment, or failure to maintain precise records, don’t panic!

You can take charge of the situation by comprehending your rights and the procedure.