Self Assessment Tax Return Penalty Changes

In September 2017, HMRC unilaterally changed their system of applying penalties to taxpayers who haven’t notified HMRC that they have a tax liability or make a mistake in their self assessment tax return. Unlike the existing system, this was not done in consultation with professional bodies and no notice or transition period was given.

What is the current system?

The current penalties system was established in negotiation with professional bodies and has been running since 2008-09. It states that if a taxpayer makes a mistake in their tax return or fails to notify HMRC of a tax liability, a financial penalty will be incurred.

This is worked out as a percentage of HMRC’s Potential Lost Revenue (PLR). There are different bands of penalty, assigning different amounts depending on whether you declared the error or if it was discovered by HMRC. This table explains how much you could be fined for each of HMRC’s four defined taxpayer behaviours.

Taxpayer Behaviour towards mistake / failure to notifyVoluntary disclosure scale % PLR (min – max)HMRC Prompted disclosure scale % PLR (min – max)
Deliberate and concealed30 – 100%50 – 100%
Deliberate not concealed20 – 70%35 – 70%
Careless0 – 30%15 – 30%
Reasonable care taken0 – 0%0 – 0%


HMRC decide where to place you on the scale based on the quality of your disclosure. Each disclosure is broken down into three elements: telling, helping and giving access. It is judged by HMRC using three factors: timing, extent and nature. Their conclusions define what percent can be deducted from the maximum penalty available: giving access 30%, helping 40%, telling 30%.

As you can see, it’s always better to volunteer the information to HMRC.

Timing is key

Of all the judgement factors, the timing of your disclosure is the most important. Basically, the sooner you tell HMRC of a failure to notify or a mistake in a tax return, the lower you penalty will be. To HMRC, this means within 12 months of the error. It’s worth noting that an appeal can be made against self assessment late penalties in writing to HMRC.

So what have HMRC changed?

Paragraphs CH82410, CH82430 and CH72540 of The Compliance Handbook were changed in September 2017. The Compliance Check Factsheets that were issues in December 2017 includes this statement:

“If you’ve taken a significant period (normally 3 years) to correct or disclose the inaccuracy we’ll normally restrict the amount of reduction given for disclosure. We’ll restrict the penalty range by 10 percentage points above the minimum to reflect the time taken before working out the reductions for telling, helping and giving.”

Does this mean the fines are going up?

This means that if you make your mistakes known to HMRC within three years, you will be looking at the minimum penalty.

But if you tell them after three years, you will definitely be slapped with a 10% PLR fine and if they prompt a disclosure the minimum will be 25%.

When does HMRC’s significant period start from?

This is a very good question that remains unclear. The three year significant period could be measured from a variety of starting points: end of accounting period or tax year during which the mistake was made, date of the mistake or the date the mistake was uncovered.

As reported in AccountingWeb, Head of Tax Investigations at RSM, Mike Down said; “There is an urgent need for HMRC to clarify exactly what their policy now is, to confirm its legal basis, and to explain why they believe this overturning of such a long-standing principle is necessary.”

What difference does it make to you, the taxpayer?

There seems to be three main impacts to this decision for taxpayers.

  • You need to hasten to HMRC if you find any errors in your tax return to avoid the new three year deadline. Over that time limit (however it becomes defined), you will be fined 10% PLR.
  • The previous rules meant that if you were honest with HMRC about a mistake, after taking reasonable care, you wouldn’t be fined at all. This change discourages that openness to a certain extent.
  • Your Tax Office will be spending its budget and time on previously unnecessary investigations into taxpayers that were declaring an error, and paying accordingly, anyway.

Getting professional help

If you are worried about potential fines, speak to us before you call HMRC and we can talk you through the changes to the regulations. Tax returns are notoriously tricky, so if you would rather avoid mistakes altogether you can ask us for help. You get peace of mind, no paperwork and avoid any chats with HMRC because we can talk to them on your behalf. Just fill in the quick contact form below.



Speak to an Accountant today…


Tony Shanks
Operations Director
Member of the ATT

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