HMRC penalties for careless and deliberate errors

People who search for “HMRC fines” usually expect a set charge. For errors in a return, the system does not work that way. A penalty for an inaccuracy, or for failing to tell HMRC that tax was due at all, is a percentage of the tax that was understated, and that percentage can be anywhere from nothing to double the tax. Where it lands depends on three things: the behaviour behind the error, whether the disclosure was prompted, and how fully the person helped HMRC put it right.

This guide explains each of those, the offshore ranges, suspension, interest, and how to challenge a penalty.

What HMRC means by careless, deliberate and concealed

The penalty for an inaccuracy in a return or other document comes from Schedule 24 to the Finance Act 2007. It applies to most taxes HMRC administers, including income tax, capital gains tax, corporation tax, VAT and inheritance tax. The Schedule sorts every inaccuracy into one of four kinds of behaviour.

• Reasonable care. If the return was wrong despite taking reasonable care, there is no penalty. The tax is still due, with interest.
• Careless. The inaccuracy is due to a failure to take reasonable care. Most everyday errors, such as missed income, a misunderstood relief or poor record keeping, are argued here.
• Deliberate but not concealed. The person knew the return was wrong when they gave it to HMRC, but did nothing to hide it.
• Deliberate and concealed. The inaccuracy was deliberate and the person made arrangements to conceal it, for example by producing false invoices to support a figure.

One rule catches people out. An error that was innocent when the return went in is treated as careless if the person later discovers it and does not take reasonable steps to tell HMRC. Knowing about a mistake and leaving it alone changes the position.

The category also decides how far back HMRC can assess: four years where reasonable care was taken, six for carelessness and twenty for deliberate behaviour. Where HMRC alleges carelessness or deliberate conduct, it is for HMRC to show it.

HMRC careless error penalties and the other ranges

Each behaviour has a maximum penalty and a minimum below which it cannot be reduced. The minimum is lower if the disclosure was unprompted, meaning it was made when the person had no reason to believe HMRC had discovered, or was about to discover, the inaccuracy. Once a compliance check letter has arrived about the matter, a disclosure will normally be prompted.

The percentages apply to the potential lost revenue: broadly, the extra tax due once the inaccuracy is corrected. These ranges are for domestic matters. Offshore matters are covered below.

Failing to tell HMRC at all

Someone who should have registered for Self Assessment, or notified a liability, and did not, faces a penalty under Schedule 41 to the Finance Act 2008 instead. Deliberate failures use the same ranges as the table above. Failures that were not deliberate have a structure of their own, which turns on how quickly the tax came to light.

Unlike an inaccuracy penalty, a failure to notify penalty can be cancelled altogether if the failure was not deliberate, there was a reasonable excuse, and HMRC was told without unreasonable delay once the excuse ended.

How the reduction for disclosure works

Within each range, HMRC reduces the penalty according to the quality of the disclosure. The legislation measures it under three headings, which HMRC weights as follows:

• Telling HMRC about the problem, and its full extent: up to 30%
• Helping HMRC quantify the tax, for example by working out the figures and answering questions promptly: up to 40%
• Giving access to records so the position can be checked: up to 30%

The total reduction is applied to the gap between the maximum and the minimum, not to the penalty itself. An illustration, with figures chosen for the example: a careless error has understated tax by £10,000, and HMRC allows a 70% reduction.

• If the disclosure was prompted, the range is 15% to 30%. The gap of 15 points is cut by 70%, or 10.5 points, so the penalty is 19.5%, or £1,950.
• If it was unprompted, the range is 0% to 30%. The gap of 30 points is cut by 21 points, so the penalty is 9%, or £900.

Timing counts as part of quality. HMRC’s published practice is that where a disclosure comes a long time after the tax was first due, typically three years or more, the reduction is normally limited so that the penalty sits no more than 10 percentage points above the minimum of the range.

Separately, HMRC can make a special reduction where there are special circumstances. The legislation rules out two arguments: that the person cannot afford to pay, and that one taxpayer’s underpayment is balanced by another’s overpayment.

Offshore matters carry higher penalties

Where the inaccuracy involves an offshore matter or an offshore transfer, and the tax is income tax, capital gains tax or inheritance tax, the penalty depends on the category of the territory involved. Territories are placed in category 1 or category 3 by Treasury order, and everything else falls into category 2. Domestic matters sit in category 1.

For 2016-17 and later years, the minimum penalties for deliberate offshore behaviour were raised, in every category. A deliberate offshore inaccuracy in a category 1 territory, for instance, cannot be reduced below 30% unprompted or 45% prompted, against 20% and 35% for the equivalent domestic error. The careless minimums were not changed.

Three further charges can apply in serious offshore cases:

• an offshore asset moves penalty of a further 50% of the original penalty, where assets were moved between territories to prevent or delay HMRC finding a deliberate failure
• an asset-based penalty for deliberate offshore non-compliance where the tax at stake exceeds £25,000 in a tax year, calculated by reference to the value of the asset
• the failure to correct penalty, for offshore tax for periods up to 5 April 2017 that was not put right by 30 September 2018, which starts at 200% of the tax

Suspending a careless penalty

A penalty for a careless inaccuracy can be suspended for up to two years. HMRC sets conditions, such as improvements to record keeping, which must be capable of helping the person avoid further careless errors. If the conditions are met by the end of the period, the suspended penalty is cancelled. If they are not, or another inaccuracy penalty becomes payable during the period, it becomes payable.

Suspension is not available for deliberate inaccuracies, and there is no equivalent for a failure to notify. Where HMRC refuses to suspend, or sets conditions that cannot sensibly be met, that decision can be appealed. A tribunal will only overturn a refusal if HMRC’s decision was flawed in the judicial review sense, so the request is worth making properly at the time.

Penalties and interest are not the same thing

Late payment interest is charged on tax paid late, from the date it was originally due until the date it is paid. Since 6 April 2025 the rate for most taxes has been the Bank of England base rate plus 4%, so it moves whenever the base rate does.

Interest is not a penalty. It does not depend on behaviour, it is not reduced for a good disclosure, and a reasonable excuse does not remove it. On an old error it can be substantial in its own right. A penalty that is not paid on time also attracts interest. If the total cannot be paid at once, see our guide to HMRC Time to Pay arrangements.

Late filing and late payment penalties

Penalties for filing a return late or paying late run under separate rules: fixed and daily penalties for late Self Assessment returns, and, for VAT and for anyone now in Making Tax Digital for Income Tax, a points-based regime. Those are covered in our guide to late filing penalties and penalty points.

How to challenge an HMRC penalty

A penalty is a decision, and it can be appealed. An appeal can be made against whether a penalty is due, its amount, a refusal to suspend it, or the suspension conditions.

1. Appeal to HMRC in writing, normally within 30 days of the date on the penalty notice. The appeal should say why the penalty is wrong. A late appeal can be accepted if there is a good reason for the delay, but it is not guaranteed.
2. Ask for a review, or accept one if offered. A statutory review is carried out by an HMRC officer not involved in the original decision. It costs nothing.
3. Appeal to the First-tier Tribunal if the review does not resolve the matter, normally within 30 days of the review conclusion letter. The tribunal can confirm the penalty, cancel it, or substitute another amount HMRC could have charged.

An inaccuracy or failure to notify penalty under appeal does not normally have to be paid until the appeal is settled, although the tax itself is a separate question.

Common grounds are that the behaviour category is wrong, the disclosure should have been treated as unprompted, the reduction is too low, the potential lost revenue is overstated, or the penalty should have been suspended. Each can be argued on its own.

A change HMRC has proposed

In July 2026 HMRC published draft legislation for a statutory duty to correct errors once a taxpayer becomes aware of them, with a new power to issue correction notices. Under the draft, failing to act on a known error could be treated as deliberate rather than careless. It was published for consultation and is not law at the time of writing.

Deliberate penalties have one further consequence: where the tax at stake exceeds £50,000 (£25,000 until the threshold was raised in 2026), HMRC can publish the person’s details, unless they earned the full reduction for disclosure. See our guide to HMRC’s deliberate tax defaulters list.

Sources

• Finance Act 2007, Schedule 24 (penalties for errors), in particular paragraph 3 (degrees of culpability), paragraphs 4 to 4AA (penalty percentages and offshore categories), paragraphs 9 and 10 (reductions for disclosure), paragraph 11 (special reduction), paragraph 14 (suspension) and paragraphs 15 to 17 (appeals)
• Finance Act 2008, Schedule 41 (penalties for failure to notify)
• Finance Act 2015, Schedule 21 (offshore asset moves penalties); Finance Act 2016, Schedule 21 (offshore penalty changes) and Schedule 22 (asset-based penalties); Finance (No. 2) Act 2017, Schedule 18 (requirement to correct)
• Taxes Management Act 1970, sections 49A to 49I (reviews and appeals to the tribunal)
• HMRC, “Penalties for inaccuracies in returns or documents” (CC/FS7a) and “Penalties for failure to notify” (CC/FS11) (GOV.UK)
• HMRC Compliance Handbook, CH116600 (offshore penalty ranges) and CH119100 (asset moves penalties)
• HMRC, “HMRC interest rates for late and early payments” (GOV.UK)
• HMRC, “Modernising the correction of errors”, policy paper and draft legislation, July 2026 (GOV.UK)

This guide is general information, not advice on any particular case.