Advanced Taxation (UK) · Statutory obligations, time limits and the implications of non-compliance

Penalties for Late Filing, Late Payment and Errors in ACCA ATX

Updated 11 October 2026 · Fact-checked

HMRC charges penalties for late returns, late payment, inaccurate returns and failure to notify. Error penalties are a percentage of the extra tax due, set by behaviour: careless, deliberate, or deliberate and concealed. Disclosure cuts the penalty to a minimum. Interest on unpaid tax is charged on top. Use the tax tables.

Understand Penalties for Late Filing, Late Payment and Errors

HMRC uses penalties to push taxpayers to file on time, pay on time and report correctly. There are separate regimes. Each one has its own trigger, its own rate and its own way to reduce the charge.

Start with errors. If a return is inaccurate and tax is understated, the penalty is a percentage of the potential lost revenue, which is the extra tax due because of the error. The percentage depends on the taxpayer's behaviour. The ACCA tax tables give three levels: careless, deliberate but not concealed, and deliberate and concealed.

The maximum penalty is 30% for careless, 70% for deliberate but not concealed, and 100% for deliberate and concealed. You then reduce the penalty for disclosure. Disclosure is unprompted if the taxpayer tells HMRC before they have reason to believe HMRC is about to discover the error. It is prompted otherwise. The tables give a minimum percentage for each case. The final percentage depends on the quality of the disclosure: telling, helping and giving access. A fuller disclosure gets a lower percentage, down to the minimum.

The tables also cover VAT late payment. There is no penalty up to 15 days late. At 16 to 30 days the penalty is 3%. After 30 days it is 6% plus a daily penalty at an annual rate of 10%. Separately, interest runs on tax paid late. In the exam the assumed rate on underpaid tax is 8.50% and on overpaid tax 3.50%. Interest is not a penalty. It compensates for the delay, and you charge it in addition to any penalty.

For other regimes, such as late filing and failure to notify, explain the principle in words. The tax tables do not give you rates for them. Do not invent figures. Say what triggers the penalty, that it can escalate with delay, and that a reasonable excuse can remove it.

Key rules to remember

Error penalty: Penalty = potential lost revenue × penalty percentage; Potential lost revenue is the extra tax due because of the error. The percentage depends on behaviour and disclosure.
Maximum penalty by behaviour: Careless 30%; Deliberate but not concealed 70%; Deliberate and concealed 100%; These are the maximums in the ACCA tax tables.
Minimum penalty, unprompted disclosure: Careless 0%; Deliberate not concealed 20%; Deliberate and concealed 30%; Applies if the taxpayer discloses before HMRC is about to discover the error.
Minimum penalty, prompted disclosure: Careless 15%; Deliberate not concealed 35%; Deliberate and concealed 50%; Applies if the disclosure is made after HMRC has reason to suspect the error.
VAT late payment penalty: Up to 15 days: none; 16 to 30 days: 3%; over 30 days: 6% plus daily penalty at an annual rate of 10%; Taken from the tax tables. Percentages apply to the unpaid VAT.
Interest on tax: Interest = tax unpaid × rate × months or days late ÷ period; Assumed rates: underpaid tax 8.50%, overpaid tax 3.50%. Official rate 3.75% is used for benefits, not for late tax.

How to solve Penalties for Late Filing, Late Payment and Errors questions

Use this order for any penalty question. It keeps you on the marks the examiner is looking for.

1Identify the regime: late filing, late payment, inaccurate return, or failure to notify. Name it in your answer.
2For an error, find the tax understated. This is the potential lost revenue. Check it is the extra tax, not the income omitted.
3Decide the behaviour from the facts: careless (failed to take reasonable care), deliberate but not concealed, or deliberate and concealed. Give the reason from the scenario.
4Decide whether disclosure is prompted or unprompted, and how full it is. Choose a percentage between the maximum and the minimum for that case and justify it.
5Calculate the penalty. Show the percentage and the base clearly.
6Calculate interest separately if tax was paid late. Use the stated rate and the period from the due date to the payment date.
7Add advice: correct the error now, disclose to HMRC, and consider ethics and professional duties. State the total cost.

Quickest way: Behaviour and disclosure grid

When to use it: Use this when a question asks for the range of penalty on an error and you have limited time.

Write the lost tax figure at the top.
Pick the behaviour row in the tax table and note its maximum, then the unprompted and prompted minimums.
Multiply the lost tax by the minimum and the maximum to give a range.
State which disclosure applies and which end of the range is likely. A full, early disclosure points to the minimum.
Add interest in one line using 8.50% on the late period, then give a total.

Common mistakes in Penalties for Late Filing, Late Payment and Errors

Applying the penalty percentage to the income omitted instead of the extra tax.
The question gives the omitted income figure and it is easy to use it directly.
Fix: Always compute the tax on the omitted income first. That is the potential lost revenue and the penalty base.
Treating interest as a penalty or leaving it out.
Students think of one charge for lateness.
Fix: Show penalty and interest as two separate lines. Interest compensates for delay and is charged as well.
Mixing up prompted and unprompted minimums.
The table has several similar percentages.
Fix: Unprompted is the lower figure in every row. Check the wording: did the client tell HMRC before HMRC was about to find out?
Calling every error deliberate.
Students see a large understatement and assume intent.
Fix: Judge behaviour on the facts. Failing to take reasonable care is careless. Deliberate needs knowledge or intent, and concealed needs steps to hide it.
Giving the VAT late payment penalty without checking the days late.
Students remember 6% and apply it every time.
Fix: Count the days. Nothing up to 15 days, 3% for 16 to 30, and 6% plus the daily element after 30.
Quoting rates for late filing or failure to notify that are not in the tax tables.
Students try to recall figures from earlier studies.
Fix: Use only the tables for numbers. For other regimes explain the principle and avoid stating unsupported amounts.

Worked examples

Example 1

Ravi, a sole trader, understated his income tax by £8,000 in a return because he did not keep proper records. HMRC found the error in an enquiry. Ravi cooperated fully only after HMRC had raised the enquiry. Calculate the range of penalty.

Show the solution

Regime: inaccuracy in a return. Potential lost revenue is £8,000.
Behaviour: failure to keep proper records and take reasonable care, so careless. Maximum 30%.
Disclosure: made after HMRC opened an enquiry, so prompted. Minimum for careless prompted is 15%.
Minimum penalty: £8,000 × 15% = £1,200.
Maximum penalty: £8,000 × 30% = £2,400.
Full cooperation points to the lower end, so the penalty is likely to be near £1,200. Interest at 8.50% is charged separately on the unpaid tax.

Answer: The penalty ranges from £1,200 to £2,400, with the lower end likely given full cooperation. Interest is charged in addition.

Example 2

A company paid £40,000 of VAT 20 days after the due date. Later it was found that the return had been deliberately understated, without concealment, by £10,000 of VAT. The company told HMRC before HMRC suspected anything. State the late payment penalty and the minimum error penalty.

Show the solution

Late payment: 20 days late falls in the 16 to 30 day band, so the penalty is 3%.
Penalty: £40,000 × 3% = £1,200.
Error: deliberate but not concealed has a maximum of 70%.
Disclosure was unprompted, so the minimum is 20%.
Minimum error penalty: £10,000 × 20% = £2,000.
Maximum error penalty: £10,000 × 70% = £7,000.

Answer: The late payment penalty is £1,200. The error penalty ranges from £2,000 (the minimum, unprompted) to £7,000 (the maximum), and the quality of disclosure decides where it falls.

Exam tips

Open the tax tables and use Table 19 for error penalties. Do not rely on memory for percentages.
Always name the behaviour and give a reason from the scenario. Marks are given for the reasoning, not only the figure.
Show interest and penalties on separate lines, and total them if the question asks for the cost.
Add a short professional skills point: advise the client to disclose the error and explain the benefit of doing so early.
State a range when the facts do not fix the exact percentage, and say which end is more likely.

Practice questions from Statutory obligations, time limits and the implications of non-compliance

Penalties for Late Filing, 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 Applied SkillsInterest and Penalties for Late Payment and Errors

Penalties for Late Filing, Late Payment and Errors: frequently asked questions

What is the difference between careless and deliberate error penalties?

Careless means the taxpayer did not take reasonable care, and the maximum penalty is 30%. Deliberate means the taxpayer knew the return was wrong. It carries 70% if not concealed and 100% if concealed.

How can I reduce an HMRC penalty by disclosure?

Tell HMRC about the error, help them work out the amount and give access to records. Unprompted disclosure gives the lowest minimum percentages. A careless error disclosed unprompted can have no penalty.

Is interest the same as a penalty?

No. Interest compensates HMRC for tax paid late. A penalty is a charge for the behaviour. Both can apply to the same tax.

Where do I find the penalty rates in the ATX-UK exam?

They are in the tax tables ACCA provides in the exam. This includes the error penalty table, the VAT late payment table and the interest rates. Learn how to apply them rather than memorising them.