Taxation (UK) · The systems for self-assessment and the making of returns

Interest and Penalties for Late Payment and Errors in TX-UK

Updated 11 October 2026 · Fact-checked

Interest compensates HMRC for tax paid late and runs from the due date to the payment date. Penalties punish behaviour. Late filing penalties depend on how late the return is. Late payment penalties are 5% steps of unpaid tax. Error penalties are a percentage of the extra tax, set by behaviour and disclosure.

Understand Interest and Penalties for Late Payment and Errors

Three separate things can go wrong with a self-assessment return: you file it late, you pay the tax late, or the return contains an error. Each has its own cost. Keep them apart in your head and the topic becomes simple.

Interest is not a punishment. It is the cost of borrowing HMRC's money. It runs on tax paid late from the due date until the day of payment. In the ACCA rates, interest on underpaid tax is 8.5% and interest on overpaid tax is 3.5%. The official rate of 3.75% is for beneficial loans, so do not use it here.

Penalties are charged on top of interest. A late filing penalty depends only on how late the return is. A late payment penalty depends on how long the tax stays unpaid. An error penalty depends on the potential lost revenue, which is the extra tax due because of the error, and on the taxpayer's behaviour: careless, deliberate but not concealed, or deliberate and concealed.

A taxpayer can avoid a penalty by showing a reasonable excuse, such as a serious illness or an event outside their control. Insufficient funds is not normally a reasonable excuse. Relying on someone else is not an excuse unless you took reasonable care. The excuse must also end, and the failure must then be put right without unreasonable delay.

This page focuses on individuals under self-assessment. VAT late payment penalties follow the table in the key rules. Companies have their own filing penalties, so check which taxpayer the question is about.

Key rules to remember

Late filing penalty: first stage: Return up to 3 months late: ₹ equivalent is £100 fixed penalty, charged as soon as the return is late; Charged even if no tax is due. This is a fixed amount, not based on tax.
Late filing penalty: daily penalty: Return more than 3 months late: £10 per day, for up to 90 days, so a maximum of £900; Starts after the three-month point. Count only the days the return remains outstanding, up to 90.
Late filing penalty: 6 and 12 months: More than 6 months late: greater of 5% of tax due and £300. More than 12 months late: a further greater of 5% of tax due and £300; Each is separate and added to the earlier penalties. Higher amounts can apply where information is deliberately withheld, so read the question.
Late payment penalties (income tax): 5% of tax unpaid 30 days after the due date, plus 5% of tax still unpaid 6 months after the due date, plus 5% of tax still unpaid 12 months after the due date; Each 5% applies to the tax still unpaid at that date. Tax paid before a date is not charged at that date.
Interest on underpaid tax: Interest = tax paid late × 8.5% × months late ÷ 12; Runs from the due date to the payment date. Interest on overpaid tax is 3.5%.
Standard penalties for errors: Penalty = potential lost revenue × percentage. Careless: max 30%, min 0% unprompted, 15% prompted. Deliberate but not concealed: max 70%, min 20% unprompted, 35% prompted. Deliberate and concealed: max 100%, min 30% unprompted, 50% prompted; The percentage is chosen within the range according to the quality of the disclosure.
VAT late payment penalties: Up to 15 days late: none. 16 to 30 days late: 3%. More than 30 days late: 6% plus a daily penalty at an annual rate of 10%; Do not mix these with the income tax late payment penalties.

How to solve Interest and Penalties for Late Payment and Errors questions

Use the same method for any question on interest and penalties. Take each failure separately and add the results at the end.

1Identify the taxpayer and the tax: individual income tax, company, or VAT. This decides which rules apply.
2Write down the due dates: filing date and payment date. Compare each with the actual date of filing and payment.
3For late filing, work out how long the return was late and add each stage: £100, then daily penalties up to £900, then the 6-month penalty, then the 12-month penalty.
4For late payment, list the 30-day, 6-month and 12-month dates. Apply 5% to the tax still unpaid at each date that has passed.
5For interest, calculate tax unpaid × 8.5% × months ÷ 12, from the due date to the payment date.
6For errors, find the potential lost revenue, identify the behaviour, and choose the range from the table. Use the disclosure type (unprompted or prompted) to find the minimum.
7Check for a reasonable excuse in the facts. If one exists, say which penalty it removes.
8Add up each part, label it clearly (interest or penalty) and show the total.

Quickest way: Timeline method

When to use it: Use this for Section C questions or OT cases where dates are given and you must find the total cost of late filing and late payment.

Draw a short timeline with the due date, then mark the 30-day, 3-month, 6-month and 12-month points.
Mark the date of filing and the date of payment on the same line.
Tick each penalty point passed before the date of filing or payment.
Multiply: £100, £10 per day up to £900, greater of 5% or £300, and 5% of unpaid tax at each payment point.
Calculate interest last, in months, and keep it as a separate line.

Common mistakes in Interest and Penalties for Late Payment and Errors

Treating interest and penalty as the same thing, or leaving out interest entirely.
Both arise from lateness, so they feel like one charge.
Fix: Write them as separate lines. Interest is a rate × time on the tax. A penalty is a fixed amount or a percentage.
Charging the late payment penalty on the full tax liability each time.
Students forget the rule applies to tax still unpaid at each date.
Fix: Check what is unpaid at the 30-day, 6-month and 12-month points. Tax paid before a point is excluded from that point's 5%.
Using the official rate of 3.75% for interest on late tax.
It is the first rate in the table of interest rates.
Fix: Use 8.5% for underpaid tax and 3.5% for overpaid tax. The 3.75% rate is for beneficial loans.
Applying the late filing penalty of 5% of tax when it is less than £300.
Students forget the 'greater of' wording.
Fix: Calculate both 5% of the tax and £300, then take the higher. For small tax bills, £300 usually applies.
Calculating the error penalty on the total tax liability rather than the extra tax caused by the error.
The word 'tax' appears in the question and students grab the wrong figure.
Fix: Use only the potential lost revenue, which is the extra tax due as a result of the error.
Accepting lack of money as a reasonable excuse.
It sounds fair in everyday life.
Fix: State that insufficient funds is not normally a reasonable excuse, unless caused by something outside the taxpayer's control.

Worked examples

Example 1

Ben's 2025/26 self-assessment return was due online by 31 January 2027. He filed it on 30 September 2027 and paid his tax liability of £4,000 on the same day. No payments were made earlier. Calculate the late filing penalties, late payment penalties and late payment interest.

Show the solution

Filing penalties: £100 fixed penalty because the return is late.
The return is more than 3 months late, so daily penalties apply. The return is outstanding for well over 90 days after the three-month point, so the maximum applies: 90 × £10 = £900.
The return is more than 6 months late (6 months passed on 31 July 2027). Penalty is the greater of 5% × £4,000 = £200 and £300, so £300.
The return was not 12 months late, so no further filing penalty. Total filing penalties = £100 + £900 + £300 = £1,300.
Payment penalties: the 30-day point (early March 2027) has passed, so 5% × £4,000 = £200.
The 6-month point (31 July 2027) has passed, so another 5% × £4,000 = £200. The 12-month point has not been reached. Total = £400.
Interest: due date 31 January 2027 to payment 30 September 2027 is 8 months. £4,000 × 8.5% × 8 ÷ 12 = £226.67.

Answer: Filing penalties £1,300, late payment penalties £400, and interest £226.67 (to the nearest penny).

Example 2

Priya submitted her tax return with an error. The extra tax due is £8,000. Give the range of the penalty if (a) the error was careless and she told HMRC only after HMRC raised a query, and (b) the error was deliberate but not concealed and she told HMRC before any enquiry.

Show the solution

The potential lost revenue is £8,000.
(a) Careless behaviour: maximum 30%, and minimum for prompted disclosure 15%.
Minimum = £8,000 × 15% = £1,200. Maximum = £8,000 × 30% = £2,400.
(b) Deliberate but not concealed: maximum 70%, minimum for unprompted disclosure 20%.
Minimum = £8,000 × 20% = £1,600. Maximum = £8,000 × 70% = £5,600.
Interest on the extra tax is charged separately from the penalty.

Answer: (a) The penalty is between £1,200 and £2,400. (b) The penalty is between £1,600 and £5,600. Interest is extra.

Exam tips

Read for dates first. Most marks come from correctly counting months and days, so write the due dates before calculating.
Show each penalty on its own line with a label. Marks are given for method even if one number is wrong.
Learn the error penalty table by behaviour first (careless, deliberate, concealed), then the maximum, then the unprompted and prompted minimums.
In OT questions, check whether the question asks for interest, a penalty or the total. Answers are all or nothing, so do not include the wrong item.
If a reasonable excuse is in the facts, state the rule and say whether the excuse has ended and the failure was put right promptly.

Practice questions from The systems for self-assessment and the making of returns

Interest and Penalties for Late Payment and Errors in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

ACCA Strategic ProfessionalPenalties for Late Filing, Late Payment and Errors

Interest and Penalties for Late Payment and Errors: frequently asked questions

What is the difference between interest and a penalty for late payment?

Interest is the charge for having HMRC's money for longer and is a rate × time on the unpaid tax. A penalty is a fixed amount or percentage added because the taxpayer failed to comply. Both can arise on the same late payment.

What are the late filing penalties for a self-assessment return?

There is a £100 penalty once the return is late. After 3 months, daily penalties of £10 apply for up to 90 days. At 6 months and 12 months, a further penalty of the greater of 5% of the tax due and £300 applies each time.

What are the late payment penalties for income tax?

The penalty is 5% of the tax unpaid 30 days after the due date. A further 5% applies to tax still unpaid after 6 months and another 5% to tax still unpaid after 12 months.

What is a reasonable excuse for a penalty?

It is an event outside the taxpayer's control that stopped them meeting the deadline, such as serious illness. Insufficient funds is not normally accepted. The failure must be corrected without unreasonable delay once the excuse ends.

How are penalties for errors in returns worked out?

Take the potential lost revenue, which is the extra tax due. Multiply by a percentage within the range for the taxpayer's behaviour: careless, deliberate but not concealed, or deliberate and concealed. The disclosure, unprompted or prompted, sets the minimum.