Penalties: Late Payment: At a glance

What penalties apply if tax is paid late? What are late payment penalties? Can you appeal late payment penalties?

This is a freeview 'At a glance' guide to penalties for late payment of tax.

At a glance

If tax is paid late, HMRC can charge a penalty for failure to make payments on time.

Late payment penalties under Schedule 56 FA 2009 apply in respect of the following taxes:

  • Pay As You Earn (PAYE)
  • National Insurance Contributions (NICs)
  • Construction Industry Scheme (CIS)
  • Income Tax (IT)
  • Capital Gains Tax (CGT)
  • Annual Tax on Enveloped Dwellings (ATED)
  • Diverted Profits Tax (DPT)
  • Accelerated Payment Notices (APNs)

Penalties are set as follows:

Late payment Penalty
30 days late 5% of tax outstanding at that date
6 months late 5% of tax outstanding at that date
12 months late 5% of tax outstanding at that date

Time to pay agreements

Under a Time to Pay (TTP) arrangement, taxpayers can set up a payment plan to spread the cost of their outstanding tax bill.

  • The amount paid is based on a taxpayer's income and expenditure so there is no 'standard' Time to Pay arrangement.
  • Each payment plan is specific to the taxpayer's financial circumstances based on what they can afford and how much time they need to pay. 
  • A Time to Pay arrangement can cover all amounts overdue, including penalties and interest.
  • Time to Pay arrangements are designed to be flexible and are not a fixed, formal contract. They can be amended over time to reflect changes in circumstances. 

 Special reduction

  • HMRC has a statutory requirement to consider whether any special circumstances exist and if so, it may override the statutory penalties and reduce them as it sees fit. 
  • If HMRC fails to consider special circumstances, then its decision is 'flawed'.
  • If there is no evidence of HMRC considering any special circumstances, a taxpayer may also appeal against the penalties on the basis that its decision to charge penalties is flawed. 
  • A tribunal may then consider whether to reduce the penalties. However, it can only make a reduction where special circumstances exist.
  • 'Special circumstances' mean uncommon, exceptional, abnormal or unusual circumstances.

Appeal 

Sch 56 FA 2009 provides for the appeal process and it is advisable first off to ensure that any penalty charged has been made correctly according to the legislation.

  • The taxpayer has 30 days to lodge an appeal with HMRC against a tax penalty.
  • A late appeal may be accepted at the discretion of HMRC or the tribunal judge.

See: How to appeal a tax penalty and Appeals: Grounds for appeal toolkit for detailed guidance and hints and tips.

Periods of easement of penalties 

Basis Period Reform: see Late filing penalty easement for 2023-24 

Post Office Horizon Compensation: see Post office horizon compensation & tax

Covid-19 measures: see COVID-19 Tracker

Other changes in 2021-22 and earlier: see Late Filing Penalties: Subscriber guide

Useful guides on this topic

Time to Pay agreement
Businesses and self-employed taxpayers with outstanding tax liabilities may be eligible for support with their tax affairs through HMRC’s Time To Pay service.

Client guide to reasonable care and tax penalties
What triggers a tax penalty? What standard of care is expected from a taxpayer? What is reasonable care? When is an error careless?

How to appeal a tax penalty
What are the steps in making an appeal? What should your appeal cover? What does recent case law say on this topic?