Penalties: an overview for agents and advisers (2023)


It’s in everyone’s interest to avoid penalties. Understanding how HMRC penalties work can help you to help your clients avoid them.

Each tax or duty has specific rules on penalties for late payment or filing. A penalty can be due if your client does not tell HMRC about a liability to tax at the right time.

There are changes to VAT penalties and interest for accounting periods starting on or after 1 January 2023 for:

  • VAT returns that are submitted late
  • VAT which is paid late

Your clients may be charged a penalty if their return or other tax document was inaccurate and tax has been:

  • unpaid
  • understated
  • over-claimed
  • under-assessed

They can face a penalty if they do not tell HMRC that an assessment is too low. This guide gives an overview of penalties with links to more detailed information.

You and your client’s responsibility for penalties

When you are acting on behalf of a client, they still have responsibility for their returns, calculations and payments.

Your authorisation as an agent allows HMRC to deal with you on your client’s behalf, but any liability for penalties for late returns, late payments or any errors on paperwork legally remains with your client.

Penalties for late filing or late payment

Penalties for late filing of returns and paperwork or late payment differ according to which tax you are dealing with.

Self Assessment tax return deadlines and penalties

What counts as reasonable excuse when an online tax return is filed late

(Video) How Do I Avoid Penalties By Making Estimated Income Tax Payments?!

PAYE and National Insurance late payment penalties

PAYE penalties for late and inaccurate returns

Missed VAT deadlines for accounting periods starting on or after 1 January 2023

Missed VAT deadlines for accounting periods starting on or before 31 December 2022

Construction Industry Scheme (CIS) monthly returns

Corporation Tax penalties

Capital Gains Tax for property Disposals

Penalties for errors on returns, payments and paperwork

Penalties can be charged if there are errors on returns or other documents which:

  • understate the tax
  • misrepresent the tax liability

Penalties can apply if your client does not tell HMRC if an assessment is too low. This type of penalty is known as an ‘inaccuracy penalty’ and applies to the following taxes and duties:

  • Betting and Gaming duties
  • Capital Gains Tax
  • the Construction Industry Scheme
  • Corporation Tax
  • Environmental taxes
  • excise duties
  • Income Tax
  • Inheritance Tax
  • Insurance Premium Tax
  • National Insurance contributions
  • PAYE
  • Petroleum Revenue Tax
  • Stamp Duties
  • VAT

If you or your client sends in a document that has a mistake, HMRC will charge a penalty if the error is:

  • because of a lack of ‘reasonable care’
  • deliberate — such as intentionally sending incorrect information
  • deliberate and concealed — for example, intentionally sending incorrect information and taking steps to hide the error

The level of the penalty is linked to the reason why the error occurred. The more serious the reason, the higher the maximum penalty can be. HMRC can reduce the penalty if you or your client help them to put things right.

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What ‘reasonable care’ means

Every individual or business is expected to keep records that allow them to give a complete and accurate return. HMRC also expects them to check with their agent, or HMRC, to confirm the correct position, if they are not sure.

However, ‘reasonable care’ is different for each client’s circumstances and abilities. For example, a client with relatively straightforward tax affairs may only need a simple system of record keeping that is regularly updated. A large business with complex tax affairs is expected to have a more sophisticated system that is well-managed.

Read Types of inaccuracy — What is reasonable care to find out more.

How the inaccuracy penalty is calculated

If a penalty arises because of a lack of reasonable care, the level of the penalty will depend on the reasons for the error and the potential lost revenue. The potential lost revenue is an additional amount of tax which is due or payable as a result of correcting the inaccuracy.

For example, if:

  • a penalty arises because of a lack of reasonable care, the penalty will be between 0% and 30% of the extra tax due
  • the error is deliberate, the penalty will be between 20 and 70% of the extra tax due
  • the error is deliberate and concealed, the penalty will be between 30 and 100% of the extra tax due

The penalty can be reduced if you or your client tells HMRC about the error. HMRC may make further reductions depending on the quality of the disclosure. Penalties can be reduced by:

  • telling HMRC about the errors
  • helping HMRC work out what extra tax is due
  • giving HMRC access to check the figures

Read more about penalty calculations and potential lost revenue from the HMRC staff Compliance Manual.

Read the HMRC factsheet for the offshore penalty for more information.

Failure to notify penalty

If your clients do not tell HMRC when changes happen that affect their liability to tax, VAT, or other duties, they may face a penalty. This is known as a ‘failure to notify’ penalty.

A penalty may occur, for example if your client does not tell HMRC, at the right time, that:

  • they are liable to tax because their new business has made a profit
  • their company is liable for Corporation Tax
  • their business turnover has reached the VAT registration threshold
  • they sell an asset and make a capital gain on which tax should be paid
  • they start a type of business that must register with HMRC — for example a business that will charge excise duty
  • their circumstances change in a way that affects their tax position

This penalty is calculated on potential lost revenue which is based on the amount of tax or duty that is unpaid as a result of the failure to notify. HMRC can reduce the penalty if your client tells them about the failure. Further reductions may be made depending on the quality of disclosure in a similar way to the inaccuracy penalty. Read the section ‘How the inaccuracy penalty is calculated’ in this guidance for more information.

(Video) An Introduction to Penalties for Inaccuracies in Documents and Returns

Read the detailed guidance about failure to notify penalties.

Offshore penalties

From 6 April 2011, HMRC can charge an increased penalty where an inaccuracy penalty, or a failure to notify penalty, arises and the income or asset that gives rise to the penalty is held outside of the UK. The penalty for failing to submit a return for 12 months can also be increased where offshore assets or income are involved. The level of the penalty depends on how readily the foreign jurisdiction shares information with the UK and only applies to Income Tax and Capital Gains Tax.

Read the HMRC leaflet on the offshore penalty.

VAT and excise wrongdoing penalty

From 1 April 2010, HMRC will charge a penalty known as a wrongdoing penalty if your client:

  • issues an invoice that includes VAT which they are not entitled to charge
  • handles goods on which excise duty has not been paid or deferred
  • uses a product in a way that means more excise duty should have been paid
  • supplies a product at a lower rate of excise duty knowing that it will be used in a way that means a higher rate of excise duty should be paid

This penalty applies to anyone registered for VAT or excise, anyone who should be registered to pay VAT or excise duty and to other members of the general public.

This penalty is calculated in a similar way to the inaccuracy penalty. HMRC can also reduce it if your client tells them about the wrongdoing.

Read the detailed guidance on the VAT and excise wrongdoing penalty.

Download an HMRC leaflet on the VAT and excise wrongdoing penalty (PDF 54K).

Helping your clients avoid penalties

As a tax agent and adviser, all of your actions will be geared towards avoiding problems and penalties.

You can give your clients more information about how the system works so they can consider if their record keeping arrangements and processes are adequate to produce accurate returns.

Read the following HMRC leaflet to find out more: New penalties for errors in tax returns and documents (PDF 38K).

(Video) My Tax Preparer Messed Up My Taxes And Now I Owe Penalties!

It’s also a good idea to reinforce to your clients that if they have any questions about their tax and record keeping, they should check with you for advice.

You can get more information about how penalties work, from the HMRC staff Compliance Manual, which will continue to be updated.

Appealing late filing penalties for clients due to coronavirus (COVID-19)

Due to the impact of COVID-19 on individuals and businesses, we recognise that some customers and agents may have difficulty meeting their filing obligations.

HMRC has advised that COVID-19 may be accepted as a reasonable excuse for appeals made against a 2020 to 2021 late filing penalty for Self Assessment customers.

Published 1 January 2014
Last updated 13 January 2023 +show all updates

  1. Updated for changes to VAT penalties and interest that apply to accounting periods starting on or after 1 January 2023.

  2. Information about submitting a bulk appeal for late filing penalties, where COVID-19 has been claimed as a reasonable excuse has been removed.

  3. Guidance has been updated to state that COVID-19 may be a reasonable excuse for late filing of the 2020 to 2021 tax return.

  4. Guidance about how to bulk-appeal Late Filing Penalties due to coronavirus has been added.

    (Video) What Is An Annuity And How Does It Work?

  5. A link forCapital Gains Tax for property Disposals has been added to thePenalties for late filing or late payment section.

  6. First published.


What are the KRA penalties? ›

Date: Individual Income Tax Returns should be filed on or before 30th June of the following year. Penalty on late filing: Whichever is higher between, 5% of the tax due or Kshs. 2,000. Penalty on late payment: 5% of the tax due and a late payment interest of 1% per month on the unpaid tax until the tax is paid in full.

What are the penalties for prompted disclosure? ›

The penalty range for a careless inaccuracy with a prompted disclosure is 15% to 30% of the PLR. The reduction for quality of disclosure (telling, helping and giving) was 70%. To work out the amount of the penalty, we multiply the PLR by the penalty percentage rate.

What are the penalties for non filing of income tax return? ›

Penalty Levied

₹ 5000 if ITR is reported before 31st December of the Assessment Year, ₹ 10,000 if ITR is reported after 31st December but before 31st March of the Assessment Year. This is for those whose income is above ₹ 5 Lakh. For those with income below this, the penalty is ₹ 1000.

What is failure to correct penalties? ›

The Failure to Correct (FTC) penalties apply were income tax, capital gains tax or inheritance tax is due relating to an offshore interest. By requiring people to correct undeclared offshore tax liabilities by a set date HMRC has drawn a “line in the sand”, one which it is using to trigger the new penalties applicable.

How do I know if I have KRA penalties? ›

How to Check & Pay KRA Penalties on iTax Portal Using Compliance Method
  1. Make sure you have your KRA pin and password. ...
  2. Log in to the iTax portal.
  3. Click on certificates and then click on apply for tax compliance. ...
  4. However, if you have penalties or pending returns you will get a message confirming the same.
Mar 7, 2022

How do I get a waiver for KRA penalties? ›

All the principal taxes must be fully paid before an application can be lodged for consideration for waiver. The taxpayer has to be compliant in other taxes with regard to filing and payment of taxes. The applicant's past compliance record is taken into account when processing the waiver application.

What is the maximum penalty for disclosing to a client that a suspicious transaction was filed? ›

The Proceeds of Crime (Money Laundering) and Terrorist Financing Administrative Monetary Penalties Regulations (AMP Regulations) allow a penalty ranging from $1 to $500,000 for a violation of the requirement to submit STRs.

How much penalty per day can be imposed by information officers if an officer is not given information under RTI Act? ›

the Information Commission can impose a penalty of Rs 250 per day. The total penalty cannot exceed Rs 25,000.

What is accuracy related penalties? ›

An Accuracy-Related Penalty applies if you underpay the tax required to be shown on your return. Underpayment may happen if you don't report all your income or you claim deductions or credits for which you don't qualify.

Will IRS forgive late filing penalties? ›

The IRS can abate penalties for filing and paying late if there is reasonable cause. Generally, interest charges may not be abated and continue to accrue until all assessed tax, penalties, and interest are paid in full. The law does provide exceptions for allowing abatement or suspension of interest.

Is there a failure to file penalty if you don't owe? ›

The failure-to-file penalty usually doesn't apply if you're due a refund. If the IRS owes you money, and you haven't filed a tax return to claim it, get cracking! You typically have just three years to claim a tax refund. There is usually no penalty for failure to file if your tax return results in a refund.

Is there a late filing penalty if you don't owe? ›

There is no penalty for filing a late return after the tax deadline if a refund is due. If you didn't file and owe tax, file a return as soon as you can and pay as much as possible to reduce penalties and interest.

How many types of penalties are there? ›

There are five types of punishments awarded to criminals according to the Indian Penal Code. We have discussed different punishments imposed differently in multiple offences; the term, nature, etc., varies in every case and offence and according to courts. All penalties are reformative and deterrent.

What are the two classification of penalties? ›

 Classifications of principal penalties: According to their divisibility. 1) Divisible – those that HAVE FIXED DURATION and are divisible into THREE PERIODS. 2) Indivisible – those which have NO FIXED DURATION.

How do I pay for KRA penalties? ›

After filing the return online via iTax, generate a payment slip and present it at any of the appointed KRA banks to pay the due tax. You can also pay via Mpesa. Use the KRA Pay bill number 572572. The Account Number is the Payment Registration number quoted at the top right corner of the generated payment slip.

How do I pay my KRA penalties? ›

enter the KRA Paybill Number 572572. ACCOUNT NUMBER For account no. type a valid E-slip number as obtained via iTax. AMOUNT Enter the exact amount as per the e-slip.

Who is supposed to file KRA returns? ›

In Kenya, every registered taxpayer with a Personal Identification Number (PIN) obtained from the Kenya Revenue Authority (KRA) must file tax returns every financial year. Those who have no business or are not in gainful employment must file nil KRA tax returns.

Can I get my IRS penalties waived? ›

COVID Penalty Relief

You may qualify for penalty relief if you tried to comply with tax laws but were unable due to circumstances beyond your control. If you received a notice or letter, verify the information is correct. If the information is not correct, follow the instructions in your notice or letter.

Who qualifies for KRA waiver? ›

To qualify for a waiver, the taxpayer has to be compliant in all taxes with regard to filing and payment of taxes. The applicant's past compliance record is taken into account when processing the waiver application. 4.

Can penalties be waived? ›

If you believe that a penalty should be waived because the failure to pay the tax on time was due to reasonable cause and was not intentional or due to neglect, you have the right to request a penalty waiver.

What are the penalties for non compliance with suspicious activities reporting? ›

The drug dealing offences and the offences that constitute criminal conduct are set out in the schedules to the CDSA (“predicate offences”). Failure to make a suspicious transaction report under section 39(1) CDSA may amount to an offence, and upon a conviction, a fine not exceeding $20,000 can be imposed.

What is the punishment for non compliance? ›

Civil penalties for export and trade sanctions violations can range up to $65,000 and $250,000 for civil violations depending on the authorizing legislation. Criminal penalties for individuals can be up to $1,000,000 and 20 years of imprisonment.

How much is the penalty for violation of data privacy law? ›

The Data Privacy Act provides for criminal sanctions for violations of its provisions composed of fines ranging from PhP100,000 to PhP5,000,000 (about USD$2,400 to USD$123,450) and/or imprisonment ranging from 6 months up to 7 years.

What is maximum penalty imposed by the information Commissioner? ›

What is the higher maximum? The higher maximum amount, is £17.5 million or 4% of the total annual worldwide turnover in the preceding financial year, whichever is higher.

Who can impose penalty under section 20 of Right to Information Act? ›

(1) Where the Central Information Commission or the State Information Commission, as the case may be, at the time of deciding any complaint or appeal is of the opinion that the Central Public Information Officer or the State Public Information Officer, as the case may be, has, without any reasonable cause, refused to ...

What are the maximum penalties of not following the notifiable data breach laws? ›

$50 million; three times the value of any benefit obtained through the misuse of information; or. 30 per cent of a company's adjusted turnover in the relevant period.

What does it mean to assess a penalty? ›

Penalty Assessment (PA) is an amount added to base fines or base bail on infraction, misdemeanor and felony offenses.

What are reasonable cause and good faith penalty exceptions? ›

Circumstances that may indicate reasonable cause and good faith include an honest misunderstanding of fact or law that is reasonable in light of all of the facts and circumstances, including the experience, knowledge, and education of the taxpayer.

What is the operational definition of penalty? ›

Operational Penalty means the monetary penalty to be paid by the Concessionaire to the City for an Operational Breach as specified in the Operating Standards, including any additional monetary penalty assessed for multiple Operational Breaches, Adjusted for Inflation from the Closing Date to the latest period covered ...

What is the failure to file penalty for 2022? ›

If your return was over 60 days late, the minimum Failure to File Penalty is $435 (for tax returns required to be filed in 2020, 2021 and 2022) or 100% of the tax required to be shown on the return, whichever is less.

How far back can the IRS penalize you? ›

The IRS Typically Has Three Years.

The overarching federal tax statute of limitations runs three years after you file your tax return. If your tax return is due April 15, but you file early, the statute runs exactly three years after the due date, not the filing date.

How long does the IRS have to collect penalties? ›

Internal Revenue Code section 6502 provides that the length of the period for collection after assessment of a tax liability is 10 years. The collection statute expiration ends the government's right to pursue collection of a liability.

What happens if you miss the tax deadline on October 15? ›

Will the IRS charge penalties for not filing by October 17th? If you have a tax refund coming, there is no penalty for filing late. Penalties are calculated based on amounts due. If you file after the October 17 extended tax deadline and you owe, you will be subject to late filing fees.

What is the late filing penalty for 1041 no tax due? ›

The penalty is $530 (and no maximum) if this requirement was intentionally disregarded. Form 1041 – April 15 due date, with an extension available until September 30 by filing IRS Form 7004. The late filing penalty is 5% of the tax due for each month or part of a month that a tax return is late, up to a maximum of 25%.

What happens if you don't file taxes for 3 years? ›

After not filing for three years, here's what happens

Set up a levy on your wages or bank account. The result can be a garnishment of wages and other income. File a notice of a federal tax lien, which can limit your ability to take out loans or use your credit.

What are the 3 types of penalties? ›

Those who study types of crimes and their punishments learn that five major types of criminal punishment have emerged: incapacitation, deterrence, retribution, rehabilitation and restoration.

What is the penalty rule in law? ›

A clause which operates on breach of contract (such as a liquidated damages clause) which cannot be justified by some consideration, such as the desire to compensate or to protect a legitimate interest of the innocent party.

What are the 5 types of punishments? ›

Sec 53 of the Indian Penal Code, 1860 prescribes 5 kinds of punishments.
  • Death Penalty.
  • Life imprisonment.
  • Imprisonment. Rigorous. Simple.
  • Forfeiture of property.
  • Fine.

How many steps are penalties? ›

Stand 5-6 steps behind the ball, slightly to the left of the ball if you are right footed.

What is an example of a penalty fee? ›

More Definitions of Penalty Fee

Penalty Fee means a fee assessed for failure to pay for parking, or properly display proof of payment, at a pay and park facility. This term also applies to a fee assessed for unauthorized or over-time parking at a non-pay private parking facility.

How many rounds of penalties are there? ›

Each team has five shots which must be taken by different kickers; the team that makes more successful kicks is declared the victor. Shoot-outs finish as soon as one team has an insurmountable lead. If scores are level after five pairs of shots, the shootout progresses into additional "sudden-death" rounds.

What is penalty classification? ›

Perpetual or temporary absolute disqualification, Perpetual or temporary special disqualification, Suspension from public office, the right to vote and be voted for, the profession or calling.

What are four functions of criminal penalties? ›

Four major goals are usually attributed to the sentencing process: retribution, rehabilitation, deterrence, and incapacitation.

What is the purpose of the penalties and sentencing act? ›

to ensure that the offender is adequately punished for the offence; to punish the offender to an extent or in a way that is just in all the circumstances; or.

What is the penalty for failure to pay KRA? ›

Penalty - Whichever is greater of, 5% of the amount of the tax due or Ksh10,000. Offence - Failure to pay tax on due date. Penalty - 20% of tax involved is charged. Offence - Failure to file annual returns by the due date.

Does KRA waive penalties? ›

Waiver of penalty is provided in the Tax Procedures Act 2015, section 89(7). However, the section specifies the following conditions: The application must be justified with supporting documents and evidence. The principal tax must have been paid.

What are the penalties and interest on IRS taxes? ›

The penalty for late payment is 1/2% (1/4% for months covered by an installment agreement) of the tax due for each month or part of a month your payment is late. The penalty increases to 1% per month if we send a notice of intent to levy, and you don't pay the tax due within 10 days from the date of the notice.

What happens if a company fails to pay taxes? ›

If a business doesn't pay its federal income taxes by the due date, it may have to pay interest and penalties. If a business doesn't make estimated tax payments on time, it may also be assessed penalties for underpayment.

Can the IRS remove penalties and interest? ›

The IRS can abate penalties for filing and paying late if there is reasonable cause. Generally, interest charges may not be abated and continue to accrue until all assessed tax, penalties, and interest are paid in full. The law does provide exceptions for allowing abatement or suspension of interest.

What is a good reason for penalty waiver? ›

You may qualify for penalty relief if you demonstrate that you exercised ordinary care and prudence and were nevertheless unable to file your return or pay your taxes on time. Examples of valid reasons for failing to file or pay on time may include: Fires, natural disasters or civil disturbances.

How do I negotiate IRS penalties and interest? ›

Set up a monthly payment plan

If you set up a monthly payment plan with the IRS (called an installment agreement), the IRS will cut your failure to pay penalty in half. Less penalty means less interest. The IRS offers several types of installment agreements with different terms.

What is the IRS penalty interest rate for 2022? ›

More In News

WASHINGTON — The Internal Revenue Service today announced that interest rates will increase for the calendar quarter beginning October 1, 2022. For individuals, the rate for overpayments and underpayments will be 6% per year, compounded daily, up from 5% for the quarter that began on July 1.


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