The Mistakes That Could Cost You Hundreds
13 Oct 2025 – written by Steffen Kemmerzehl – Friendly Assist Accountancy – Blog
Most people who receive an HMRC penalty never expected it to happen. They are not trying to avoid paying tax or hide their income. In many cases, the problem starts with a simple oversight, such as missing a tax return deadline, overlooking an HMRC letter, or not realising that a new source of income needs to be declared.
Unfortunately, small mistakes can quickly become expensive. Once a deadline has passed, HMRC may issue penalties and interest automatically. The system cannot take into account that you have moved house, been busy with work, experienced personal circumstances, or genuinely believed your tax affairs were already in order.
Many people are surprised to receive a brown envelope informing them that they owe a penalty for something they did not even know was wrong. This is especially common for first time Self Assessment taxpayers, landlords, people with side income, and those who have recently become self employed.
The good news is that many HMRC penalties are entirely preventable with the right advice and by keeping your tax affairs up to date. In some situations, penalties can also be appealed if you have a reasonable excuse or there has been an error.
If you have received an HMRC penalty, or you are worried that you may have missed a deadline or forgotten to declare income, it is always worth seeking advice as early as possible. Taking action quickly can often reduce the financial impact and help you resolve the issue before it becomes a much bigger problem.
With Making Tax Digital now affecting many sole traders and landlords, staying on top of your tax obligations is becoming more important than ever.
Quick Answers About HMRC Penalties
What is the penalty for late Self Assessment UK?
£100 fixed penalty if you miss the filing deadline, even if no tax is due.
Do HMRC penalties increase over time?
Yes. Additional daily and percentage-based penalties apply the longer the return or payment is delayed.
Can HMRC penalties be cancelled?
Yes, but only if you have a valid “reasonable excuse” or HMRC made an error.
What is the most common HMRC penalty?
The £100 automatic late filing penalty.
Do You Actually Need to File a Tax Return?
Many penalties start because somebody assumed PAYE covered everything.
You may need to complete a Self Assessment tax return if you are:
- Self-employed
- A landlord receiving rental income
- A company director
- Receiving foreign income
- Running a side business
- Receiving other untaxed income
Many people are surprised to discover they have a filing obligation despite paying tax through PAYE.
If you’re unsure whether you should be filing a tax return, it is worth checking before HMRC contacts you.
What is the penalty for late Self Assessment UK?
£100 fixed penalty if you miss the filing deadline, even if no tax is due.
Do HMRC penalties increase over time?
Yes. Additional daily and percentage-based penalties apply the longer the return or payment is delayed.
Can HMRC penalties be cancelled?
Yes, but only if you have a valid “reasonable excuse” or HMRC made an error.
What is the most common HMRC penalty?
The £100 automatic late filing penalty.
Who Commonly Gets Caught Out?
The people we most often see facing unexpected Self Assessment penalties include:
- Landlords
- Side hustle owners
- Freelancers
- Construction subcontractors
- Company directors
- Individuals with overseas income
In many cases, they assumed tax was already being dealt with elsewhere.
Unfortunately, HMRC may take a different view.
Why Self Assessment Penalties Matter More Than Ever
Many people are aware of the £100 late filing penalty for a missed Self Assessment tax return and assume that this is the maximum they could be charged. Unfortunately, that is rarely the case. If a tax return remains outstanding, HMRC can apply additional late filing penalties, charge interest on any unpaid tax, and add late payment penalties where applicable.
What begins as a relatively small oversight can quickly grow into a bill worth several hundred pounds or even more. We regularly speak to taxpayers who intended to deal with their tax return the following month, only to discover that further charges had already been added by HMRC.
The longer a Self Assessment issue is left unresolved, the more costly it can become. Taking action as soon as possible not only helps to limit penalties and interest but also gives you a better chance of resolving the matter before it develops into a much more expensive problem.
The Most Common Reasons People Receive HMRC Penalties
Most HMRC penalties are not the result of deliberate tax evasion. They are usually caused by misunderstandings, missed deadlines, or simple administrative mistakes. Understanding the most common causes can help you avoid unnecessary penalties and keep your tax affairs on track.
Not Realising a Tax Return Is Required
One of the most common reasons people receive an HMRC penalty is because they did not realise they needed to file a Self Assessment tax return. This often affects new landlords, freelancers, side hustle owners, company directors, and individuals with overseas income. Many people assume that because they already pay tax through PAYE, they have no further obligations. While this is true for some taxpayers, many are still legally required to submit a tax return.
Missing Important HMRC Correspondence
Life can be hectic, and it is surprisingly easy for important HMRC communications to be overlooked. People move house without updating their address, emails end up in spam folders, and letters are put aside and forgotten. Unfortunately, HMRC deadlines continue regardless of whether the correspondence has been seen, making missed notifications a common cause of penalties.
Poor Record Keeping
Keeping accurate financial records is essential for filing a correct and timely tax return. Missing receipts, lost invoices, incomplete bookkeeping, or failing to track income throughout the year can all create unnecessary stress when the filing deadline approaches. As a result, many taxpayers rush to complete their return, increasing the risk of mistakes, late filing, or incorrect tax calculations.
Leaving Everything Until the Last Minute
Every January, thousands of taxpayers leave their Self Assessment tax return until the final days before the deadline. If important information is missing or unexpected issues arise, there is often not enough time to resolve them. Filing early provides more time to gather documents, correct errors, and avoid unnecessary penalties.
A Common Real Life Example
A common example is a landlord who earns rental income while also working under PAYE. Because tax is deducted from their salary, they assume everything is already taken care of and do not realise they must also complete a Self Assessment tax return. Months later, HMRC identifies the missing return and automatically issues penalties. Situations like this happen far more often than many people expect.
How a £100 HMRC Penalty Can Quickly Increase
Many people believe the £100 late filing penalty is the maximum they can be charged, but this is often only the beginning. If a Self Assessment tax return remains outstanding, HMRC can apply additional late filing penalties, charge interest on unpaid tax, and add late payment penalties where appropriate.
What begins as a simple missed deadline can quickly turn into a much larger financial problem. Taking action early is the best way to minimise penalties, reduce interest, and bring your tax affairs back up to date before the costs continue to grow.
HMRC penalties for late filing currently work as follows:
| Delay Period | Penalty |
|---|---|
| Up to 1 day after deadline | £100 |
| More than 3 months | £10 per day (up to £900) |
| More than 6 months | £300 or 5% of tax due (whichever is higher) |
| More than 12 months | Additional £300 or 5% of tax due (whichever is higher) |
This is why we usually recommend dealing with a missed return immediately rather than waiting for another HMRC letter.
What Counts as a “Reasonable Excuse” for HMRC?
HMRC may cancel or reduce penalties if you had a genuine “reasonable excuse” for missing a deadline. However, HMRC assesses each case individually and applies strict criteria.
Examples HMRC may accept:
- Serious illness or hospitalisation
- Bereavement of a close relative shortly before the deadline
- Unexpected IT system failures (HMRC or approved software)
- Fire, flood, or theft affecting records
- Postal delays outside your control
- Major life events preventing you from filing on time
Examples HMRC usually does NOT accept:
- Being too busy
- Forgetting the deadline
- Not understanding the rules
- Relying on someone else without checking
- Issues with non-essential software or preventable admin delays
HMRC expects you to take “reasonable care” to meet your tax obligations. If they decide you did not, penalties will still apply.
What If You Cannot Afford to Pay HMRC?
Receiving a tax bill and not having the money available can be stressful.
Ignoring the problem rarely helps.
In some situations, HMRC may agree a Time to Pay arrangement that allows the debt to be spread over a period of time.
The important thing is to act early rather than allowing penalties and interest to continue building.
If you’re worried about paying a tax bill, getting advice sooner rather than later often gives you more options.
Late Payment Can Be Just As Expensive
Filing your tax return is only part of the process.
You must also pay any tax due by the relevant deadline.
If tax remains unpaid, HMRC can charge penalties as well as interest on the outstanding balance.
| Tax Still Unpaid After | Penalty |
|---|---|
| 30 days | 5% of unpaid tax |
| 6 months | Additional 5% |
| 12 months | Additional 5% |
Making Tax Digital and HMRC Penalties
Since April 2026, many sole traders and landlords with qualifying income over £50,000 must follow Making Tax Digital for Income Tax. This means keeping digital records, using compatible software, and sending regular updates to HMRC. Staying organised throughout the year makes it much easier to avoid mistakes, missed deadlines, and unnecessary HMRC penalties.
Can You Appeal an HMRC Penalty?
Yes. If you believe a penalty has been issued incorrectly or you had a reasonable excuse for missing a deadline, you may be able to appeal. HMRC will consider your circumstances and may cancel or reduce the penalty if your appeal is successful. The key is to act quickly, explain what happened clearly, and provide any supporting evidence where possible.
How to Avoid HMRC Penalties
Most HMRC penalties can be avoided by keeping accurate records, opening HMRC correspondence promptly, filing your Self Assessment tax return well before the January deadline, and seeking advice as soon as something does not seem right. Dealing with problems early is almost always quicker, cheaper, and less stressful.
Self Assessment for CIS Workers
Many CIS subcontractors believe that tax deducted through the Construction Industry Scheme means they do not need to file a tax return. In many cases, this is incorrect. Failing to submit a Self Assessment return can lead to penalties and may even delay any tax refund you are entitled to receive.
Need Help With Self Assessment or HMRC Penalties?
If you have received an HMRC penalty, missed a tax return deadline, earn rental income, run a side business, or are unsure of your tax obligations, getting professional advice early can save you time, money, and unnecessary stress.
At Friendly Assist Accountancy, we help sole traders, landlords, CIS subcontractors, company directors, and individuals complete their Self Assessment tax returns, deal with HMRC, appeal penalties where appropriate, and stay fully compliant. A quick conversation today could prevent a much bigger problem tomorrow.
Steffen Kemmerzehl
I am a qualified AAT accountant in Newcastle upon Tyne.
Please get in touch if you’re interested in arranging an appointment.