What penalties might I be given?
HM Revenue & Customs (HMRC) can charge different types of penalty. Late payment of penalties will also result in interest being charged on the penalty.
We provide detailed information on penalties in the ‘tax basics’ section of this website. On this page we look at particular issues you might face if you are self-employed.
Late payment penalties
Penalties are designed to encourage compliance with the system and have an actual cost for you. Late payment penalties do not apply to payments on account, but do apply to balancing payments. Details of the late payment penalties are in the 'tax basics' section.
Tax based penalties
There is information on tax based penalties and how they are worked out in the 'tax basics' section.
After an enquiry, my taxable profits were increased for one year and decreased for the following year. No further tax is due but I have been charged a penalty. Is this right?
This is because HMRC calculate penalties based upon the amount of tax that might have been lost because of an error. So even though overall you may not have more tax to pay, HMRC look at each tax year individually and if you did not pay enough tax in one year, they may try to impose a penalty. Follow the link above to our ‘tax basics’ section which gives more information about penalties – you might be able to ask HMRC to suspend a penalty for this type of inaccuracy.
The table in the 'tax basics' section shows the scale of charges, based on percentages of tax lost. These are the same as other failure to notify or late notification penalties.
Can I be charged a penalty if my business records are found to be inadequate by HMRC?
Yes, HMRC can charge a penalty of up to £3,000 where accounting records are found to be inadequate. For more information, go to our page on business records.