Self Assessment penalties: How to avoid and what to do if you file late

HMRC is tightening down on non-compliance with tax laws. They collected 94.7% of the tax due in 2019-2020, including tax owed due to investigations. Whether you owe taxes or not, missing deadlines or making mistakes on your Self Assessment tax return can cost you a lot of money.

So, how do you stay away from them? What happens if you don’t file on time? Let’s look at self-assessment penalties and ways to avoid them.

Penalties for late filing
Late payment penalties
Self Assessment tax return penalties
Failure to notify or register penalties
How to avoid penalties
How to Appeal a Penalty
When do you have the right to appeal a penalty?
The procedure for filing an appeal
What if I disagree with the decision?
Final thoughts

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Penalties for late filing

Even if you don’t owe any tax, you might have to pay penalties if you file your Self Assessment tax return late. You must be aware of the filing and payment dates to avoid additional costs. They are as follows:

Important deadlines
  • The deadline for filing paper tax returns is October 31st.
  • The deadline for filing online tax returns is January 31st.
  • The deadline for paying the tax you owe is January 31st.

The penalties for filing late vary depending on how delayed behind you are and whether or not you owe money in taxes.

Late payment penalties

Late payment penalties only apply if you owe tax. If you don’t pay your tax liabilities by the deadline, HMRC will charge you interest on the amount owed. They deduct charges automatically as soon as you miss the deadline.

Self Assessment tax return penalties

Penalties may apply if there are any mistakes on the tax return or other documentation that understate or overstate taxes.

If you receive an inaccurate assessment from HMRC and do not notify them of the error, you may face penalties.

HMRC decides the penalty amount by the type of behaviour cited and the level of responsibility assigned to the taxpayer.

They also decide whether you come forward and admit to the mistake. After rectifying the error, HMRC can assess costs as a percentage of potential lost revenue (PLR) or the amount of tax you still owe once they have determined behaviour and culpability.

Failure to notify or register penalties

Finally, you may face penalties if you fail to register for Self Assessment or notify HMRC of any changes that affect your tax liability.

If you have any unreported income or are required to submit a Self Assessment tax return, you must register by the deadline.

Check our guide on: who needs to complete a self-assessment tax return.

If you fail to notify HMRC of anything that affects your tax liability, you may be subject to a “failure to notify” tax penalty. It includes items like a new taxable source of income or any capital gains you make throughout the tax year.

Failure to notify fines, like errors, considers the possibility of lost revenue. And the penalties vary depending on whether you disclosed the information voluntarily or involuntarily.

How to avoid penalties

The simplest method to handle the financial impact of penalties on your small business is to avoid them entirely. Here are some suggestions for avoiding fines.

How to avoids penalties

1. Be attentive to your deadlines

You must be aware of all the dates you are liable for when filing your Self Assessment tax return. We’ve already stated these deadlines, but here are a few more to add to your calendar:

  • Register for Self-Assessment by October 5th.
  • The deadline for filing a paper tax return is October 31st.
  • Pay your tax return online January 31st
  • Pay your tax bill by January 31st.

Even if you’ve entrusted your taxes to an accountant, HMRC holds you liable for missing deadlines.

As a result, keep an eye on your progress. Even if they’re out of your control, know where your return and payments are at all times.

2. Keep track of your tax records all year

You should update the information you’ll need all year to ensure your returns are timely and error-free. Work done along the road will save you time when it comes time to file your taxes.

It’s critical to keep track of your earnings and payments regularly. You should also gather the necessary papers to know what to look for when filing your return. The following are the documents you should have on hand:

  • Bank statements
  • Bring P60 or any other proof of income that you’ve already paid taxes on if you’re employed.
  • Invoices you issued
  • Keep track of your small business or self-employment spending.
  • Receipts for monetary donations
  • Records of pensions

The easiest way to do this is to use accounting software and do bookkeeping regularly.

3.  Report all income

Report all your income and deductions for the tax year to avoid filing incomplete forms. It includes all of your business earnings and any you may have outside of it. Among the possible sources are:

  • The income you invoiced clients or customers for during the year
  • PAYE-covered wages from other jobs
  • Dividends
  • Interest from the bank
  • Profits from rental properties
  • Income from a State Pension or private pensions

Furthermore, you can reduce your Self Assessment tax obligation by correctly reporting authorised expenses and donations that qualify for tax relief.

4. Set up a Time to Pay agreement if you cannot pay in full

Entering a Time to Pay agreement can help you avoid or defer penalties if you know you’ll have problems paying the full amount of tax.

This deal with HMRC permits you to postpone payment due to financial difficulties. Your monthly tax bill will contain interest on the amount outstanding, but you will not be subject to late payment penalties.

If you know you won’t be able to pay your tax obligation, contact HMRC as soon as possible to see if they can reach an agreement. Your circumstances will determine the specifics of the contract.

You’ll complete an income and expenditure assessment to assist HMRC in deciding how much you’ll pay in each instalment and how long it will take to repay your debt. You must complete your return to be eligible for Time to Pay.

You can call HMRC on 0300 200 3835 if you cannot pay in full before a deadline.

How to Appeal a Penalty

You can appeal the penalty if unforeseen circumstances prevented you from filing or paying on time or if they caused errors in your return. Here’s how to do it.

When do you have the right to appeal a penalty?

You have the right to appeal a fine if you show a reasonable justification. HMRC understands that unexpected events might throw your financial plans off track. As a result, they’ve outlined what they consider to be valid justifications for contesting a penalty.

Reasonable excuses include the following:

  • Just before the deadline, accounting software accuracy fails
  • Technical problems on HMRC’s side.
  • Death of a close family or spouse just before the deadline for filing a tax return or making a payment
  • Unpredicted hospitalisation
  • Illness that is severe or life-threatening
  • Extreme events beyond your control, such as a fire, a flood, or a robbery
  • Disability

Here is a list of Funniest Excuses for Not Filing a Tax Return on Time. None of these is acceptable as a valid reason. 

The procedure for filing an appeal

You must have filed your return (or notified HMRC that you do not need to file one) to appeal a penalty. You can demand a penalty letter from HMRC by filling out the form that comes with it. Otherwise, you have the option of filing an appeal online.

You’ll have to submit the following information in any case:

  • The penalty’s issuance date
  • Your deadline for submitting your self-assessment tax return
  • The details of your valid reason for late filing or payment

In most cases, the investigation will take 45 days. Meanwhile, you are not required to pay the fines and will not be subject to additional penalties until the appeal resolves.

HMRC will let you know the outcome of the review. You can ignore the original penalty if your appeal is accepted.

What if I disagree with the decision?

If HMRC rejects your appeal but still believes the penalty was imposed in error or shouldn’t apply to you, you can file another appeal. At this time, you have two choices:

  • You can take your agreement to the tax tribunal, an impartial body that will consider evidence from you and HMRC before judging.
  • You can opt for alternative dispute resolution.

An appeal to the tax tribunal

This alternative entails presenting your case at a hearing. You must submit your claim to the tribunal within 30 days of the appeal review judgment.

You can file an appeal online at GOV.UK, and you’ll need to provide information that will help the judge understand your part of the case, such as:

  • a copy of your initial notification or letter of review conclusion
  • Details about why you’re filing an appeal

The tribunal has a reasonable amount of time to make a judgment once you’ve submitted your case—usually 28 days.

Alternative dispute resolution

If HMRC rejects your tax appeal, you can apply for alternative dispute resolution (ADR). By having an unbiased third party arbitrate between you and HMRC, you can avoid a court appearance.

When you want to know why HMRC rejected your proof or if you believe there was a misunderstanding, you can resort to ADR. Similarly, you can apply if there is a disagreement about the facts or if you believe HMRC lacks the information necessary to make a proper decision.

ADR can help you re-establish contact between the parties or assist them in focusing on issues that still need to be solved. You can use an online form to apply.

Self-assessment tax return, in just £99!

Experlu offers more than you expect—verified UK accountants for your self-assessment, expert consultation, and fixed pricing.

Have a question? Call us on
0203 983 8100
Monday to Friday 9am – 4:30pm

Final thoughts

Follow the above ways to keep yourself away from paying fines to HMRC for filing your self-assessment tax incorrectly or lately. You can also use online software to record all your documents or contact a professional person who can handle all the tax-paying procedures.

Experlu Editorial Team
The editorial team at Experlu is comprised of seasoned financial professionals dedicated to providing high-quality content on accounting and finance. With a wealth of experience and diverse expertise, the team produces insightful articles that have established the Experlu blog as the UK's leading financial and accounting resource. The team includes accountants, auditors, and business advisors who stay updated with the latest industry developments. Their commitment to excellence ensures that Experlu remains a trusted source of information, helping readers stay informed about audit, business, finance, and tax matters.