An overview of filing and payment penalties for businesses

Across the major taxes, HM Revenue & Customs (HMRC) issues penalties when tax is not filed or paid on time.

The specific rules vary by tax type, but late submission or payment will cost you.

Let’s look at what has changed, particularly under Making Tax Digital (MTD) for VAT and MTD for Income Tax, and then recap the penalties across other key taxes.

Making Tax Digital – New late-payment regime from April 2025

The Spring Statement confirmed increased penalties for late payment of VAT and Income Tax as MTD rolls out more widely.

Once a payment is between 16-30 days late, the penalty is now three per cent on the outstanding tax owed at day 15, an increase from one per cent.

For payments 31 days late or more, a further three per cent penalty is added to the initial penalty of three per cent.

Late payments falling in this bracket also mean a daily penalty of 10 per cent per annum, an increase of six per cent.

Late-payment penalties will apply to amounts due following assessments or amendments, and balancing payments, but not to payments on account.

From 6 April 2026, taxpayers with qualifying income above £50,000 who are mandated into MTD for Income Tax will fall under a points-based penalty regime, similar to the one already in place for MTD VAT.

Key elements of the MTD for Income Tax penalty regime

• One late submission allowed without penalty in a 24-month period.
• One penalty point per late quarterly return.
• When the points threshold is reached (usually two points), a £200 penalty is charged.
• Further £200 penalties apply for each subsequent late submission until the taxpayer completes a period of compliance.
• To reset points to zero, you must make eight consecutive quarterly returns on time.

Penalty points for MTD VAT and MTD IT will be calculated separately.

During the public beta testing period, taxpayers who voluntarily join MTD IT will not receive late-filing penalties if they miss quarterly update deadlines.

Corporation Tax

For Corporation Tax, penalties apply as follows:

• One day late – £100 penalty.
• Three months late – Additional £100.
• Six months late – HMRC estimates your bill and charges 10 per cent of the unpaid tax.
• Twelve months late – A further 10 per cent penalty.

Persistent late filers (three late submissions in a row) will be charged £500 for each late submission instead of £100.

VAT (non-MTD registered)

For businesses not under MTD for VAT, penalties are calculated based on a points-based model.

You must file each VAT Return by the deadline for your accounting period, usually monthly, quarterly, or annually.

• You receive one penalty point for each late submission.
• Once you reach a penalty point threshold, you are issued a £200 financial penalty.
• You will continue to receive a £200 penalty for each subsequent late submission while at the threshold.
• The penalty point threshold varies depending on your accounting frequency:
  • Annual – Two points
  • Quarterly – Four points
  • Monthly – Five points

If you correct your compliance and submit all returns on time for a set period (depending on your accounting frequency), your points will reset to zero.

Capital Gains Tax

The reporting and payment deadline for Capital Gains Tax on residential property disposals is 60 days. Penalties for late filing are:

• £100 fixed penalty after the deadline.
• Additional penalties for continued delay:
  • £300 or five per cent of the tax due (whichever is higher) after six months.
  • A further £300 or five per cent after twelve months.

HMRC is ramping up enforcement as it continues the digital transformation of the tax system. Businesses should prioritise:

• Timely submission and payment of all taxes.
• Embracing digital record-keeping under MTD.
• Using reliable accounting software and advisors to track deadlines.

Avoiding penalties will help you remain in HMRC’s good books and keep your business finances in order.

If you are unsure about any of these submission and payment penalties and would like more information, our team is here to help. Contact us today.