HMRC Penalties You Can Avoid: A Guide for Business Owners

Monday, 17th February, 2025

As a business owner or self-employed individual, you know how important it is to stay compliant with HMRC regulations. However, with so many deadlines and rules to keep track of, it's easy to make mistakes - and those mistakes can be costly! HMRC penalties are often imposed for missed deadlines or errors in your tax filings, and the consequences can be severe. In this post, we'll walk you through the most common HMRC penalties and, more importantly, how you can avoid them.

1. Late Tax Return Filing

   
   

   ❌ Penalty: £100 fine if you miss the deadline for submitting your self-assessment tax return. This applies even if you owe no tax or have already paid.

   
   

   ✅ Avoid It: Make sure you submit your tax return on time - the deadline is the 31st of January for self-assessment. To avoid this, set a reminder months in advance and keep track of important dates throughout the year. You can also file early if you're ready.

   
   

2. Late Payment of Tax

   
   

   ❌ Penalty: After 30 days, HMRC will charge 5% of the unpaid tax, plus daily interest.

   
   

   ✅ Avoid It: Ensure you pay your tax bill on time to avoid interest and penalties. If you're struggling to pay, contact HMRC and set up a "Time to Pay" arrangement. This allows you to pay in instalments without incurring penalties.

   
   

3. Inaccurate Tax Returns

   
   

   ❌ Penalty: If HMRC finds inaccuracies in your tax return, you could face penalties of up to 100% of the tax owed, especially for deliberate errors or fraud.

   
   

   ✅ Avoid It: Double-check your tax returns before submitting them. If you're unsure about any figures, consult a tax professional or accountant to ensure your return is accurate and complete.

   
   

4. Failure to Register for VAT

   
   

   ❌ Penalty: If you should be VAT registered but fail to do so, HMRC can charge penalties ranging from 5% - 15% of the VAT owed.

   
   

   ✅ Avoid It: If your turnover exceeds the VAT threshold (£90,000 for 2024), you must register for VAT. Keep track of your earnings and register as soon as your business reaches the threshold to avoid fines.

   
   

5. PAYE & National Insurance Errors

   
   

   ❌ Penalty: HMRC may fine you for incorrect payroll reporting, including errors in PAYE (Pay As You Earn) and National Insurance Contributions.

   
   

   ✅ Avoid It: Use reliable payroll software to ensure all employees' PAYE and NI contributions are accurate. Make sure to submit Real-Time Information (RTI) to HMRC on time for every payroll cycle.

   
   

6. Failure to Keep Records

   
   

   ❌ Penalty: HMRC can impose penalties of up to £3,000 per tax year for failure to maintain accurate records.

   
   

   ✅ Avoid It: Keep thorough and accurate records of your business's financial transactions. HMRC requires you to maintain records for at least 6 years, so invest in a solid record-keeping system to stay compliant.

Conclusion

HMRC penalties can add up quickly, but with the right planning and attention to detail, they're easily avoidable. Stay on top of deadlines, double-check your tax returns, and maintain accurate records to ensure compliance with HMRC's regulations. If you're ever in doubt, reach out to a professional to help you navigate the complexities of tax filings and avoid costly mistakes.

By following these simple steps, you can save money, time, and stress - and focus on growing your business instead!

Need help with your taxes? Don't hesitate to reach out to us at Pro Tax Plus for expert guidance and support. We've got your back when it comes to keeping your business on track with HMRC.