Late Filing Penalties Guide: Navigating the 2026/27 UK Tax Regime

The UK tax system currently operates under a dual regime for late filing penalties. While HMRC transitions major taxes to a modern points-based system, many established tax obligations remain under the legacy legislation found in Schedule 55 of the Finance Act 2009 (FA 2009). Practitioners must accurately identify which legislative framework applies to their clients to manage compliance risks effectively.

The Points-Based Regime (VAT and ITSA)

Schedule 24 to the Finance Act 2021 (FA 2021) introduced a points-based late submission penalty regime, primarily targeting VAT and Income Tax Self Assessment (ITSA).  The government designed this system to penalise persistent non-compliance rather than isolated administrative errors.

When a taxpayer misses a submission deadline, they incur a single penalty point instead of an immediate financial charge.  A fixed financial penalty of £200 applies only when the taxpayer accumulates enough points to reach a specific threshold based on their filing frequency.  After reaching the threshold, every subsequent late submission triggers a further £200 fixed penalty.

Table: FA 2021 Penalty Point Thresholds

Points generally expire after 24 months, provided the taxpayer has not reached the penalty threshold.  If the taxpayer hits the threshold, they must meet all submission obligations for a set compliance period and provide any outstanding submissions for the preceding 24 months before HMRC resets the points total to zero.

MTD for Income Tax: 2026/27 Concession

For the 2026/27 tax year specifically, HMRC confirmed it will not apply penalty points for late quarterly updates under Making Tax Digital (MTD) for Income Tax.  However, taxpayers must still submit these quarterly updates before they can file their final annual tax return.

FA 2026 Updates to Penalty Points

The Finance Act 2026 (FA 2026) refines the administrative machinery of the points system. Section 262 of FA 2026 explicitly grants HMRC the statutory power to cancel individual penalty points.  If HMRC exercises this power, any penalty assessment relying on that cancelled point ceases to have effect, though HMRC retains the right to subsequently award a point for the same underlying failure if appropriate.

The Legacy Regime: Schedule 55 FA 2009

For taxes not yet migrated to the points-based system, the legacy rules in Schedule 55 FA 2009 dictate the penal consequences of late filing.  This regime imposes automatic, escalating financial penalties based on the duration of the default.

Under paragraph 1 of Schedule 55, a penalty is payable when a person fails to deliver a specified return on or before the filing date.  The penalty structure escalates severely:

1. Initial Penalty: An immediate £100 penalty applies on the day following the filing deadline.
2. Daily Penalties (3 months late): If the failure continues after three months, HMRC may charge £10 per day for up to 90 days (a maximum of £900).
3. Six-Month Penalty: If the return remains outstanding after six months, a further penalty applies, calculated as the greater of £300 or 5% of the tax liability shown on the return.
4. Twelve-Month Penalty: After twelve months, a second further penalty applies, again the greater of £300 or 5% of the tax liability.

“Where, by failing to submit the return, the taxpayer deliberately withholds category 1 information… which would enable or assist HMRC to assess the taxpayer’s liability to tax but does not conceal that he has done so, the relevant percentage is 70%.”

Corporation Tax: FA 2026 Penalty Increases

Corporation Tax late filing penalties fall under Schedule 18 to the Finance Act 1998. The government noted these penalties had eroded in real terms due to inflation.  Consequently, Section 265 of FA 2026 doubles these flat-rate penalties for company tax returns where the filing date falls on or after 1 April 2026.

• The initial penalty for a late return increases from £100 to £200.
• The penalty for a return filed more than three months late increases from £200 to £400.
• Where a company has three successive failures, the initial penalty rises to £1,000, and the over-three-months penalty rises to £2,000.

Statutory Defences: Reasonable Excuse

Across all these penalty regimes, taxpayers can escape liability if they establish a “reasonable excuse” for the late filing.

However, statute explicitly restricts what constitutes a reasonable excuse. An insufficiency of funds cannot form a reasonable excuse unless it is directly attributable to events outside the taxpayer’s control.  Furthermore, relying on a third party (such as an accountant or agent) is not a reasonable excuse unless the taxpayer proves they took reasonable care to avoid the failure.

Crucially, once the event forming the reasonable excuse ceases, the taxpayer must remedy the filing failure without unreasonable delay; otherwise, the defence is invalidated for the entire period of default.

Consider reviewing the specific interaction between late filing penalties and the newly aligned late payment penalties, as clients frequently incur both simultaneously under the updated FA 2021 provisions.