Corporation Tax: penalties
Find out when your company may be charged a Corporation Tax penalty and how they are calculated.
Overview
If your company or organisation is liable for Corporation Tax, and you don’t meet HM Revenue and Customs (HMRC) deadlines and requirements, then you may face a penalty.
If you’ve made an error, done something you shouldn’t have, or not done something you should have, you must correct it immediately. If you do, you may not be charged a penalty or the penalty charged may be less.
If your company or organisation doesn’t meet its responsibilities for other taxes and duties, further penalties may also arise.
Avoid Corporation Tax penalties
HMRC expects you to take reasonable care over your company or organisation’s tax affairs. If you took reasonable care but still made a mistake, HMRC may not charge a penalty or the amount of the penalty may be reduced. Examples of reasonable care include:
- making sure your Company Tax Return is accurate and sending it into HMRC on time - this includes ensuring all company accounts, computations, claims and calculations are correct
- telling HMRC promptly (within 12 months of the end of your Corporation Tax accounting period) if your company or organisation has profits chargeable to Corporation Tax but HMRC hasn’t sent you a ‘Notice to deliver a Company Tax Return’
- keeping sufficient records to support your Company Tax Return, company accounts and any claims to allowances and reliefs
- providing HMRC with all the information they need when they ask
- asking HMRC if you’re not sure about anything and following any advice they give you
If you discover you’ve made a mistake, or not told HMRC something you should have, you should tell them immediately. This may reduce the amount of penalty you face or may mean you don’t have to pay one at all. What reasonable care means will depend on your company or organisation’s individual circumstances.
If you don’t agree with a penalty HMRC has charged your company or organisation, you can appeal the decision.
Penalties for not telling HMRC your company is liable for Corporation Tax
If your company or organisation has Corporation Tax to pay but you don’t receive a ‘Notice to deliver a Company Tax Return’ from HMRC, you still must tell HMRC it’s liable for Corporation Tax. You must do this within 12 months of the end of your Corporation Tax accounting period.
If you don’t, your company or organisation may be charged a penalty. HMRC calls this a ‘failure to notify’ penalty.
When a penalty may arise
If after 1 April 2010, you don’t tell HMRC that your company or organisation is liable for Corporation Tax, the penalty is based on the amount of tax that’s unpaid or that your company or organisation is liable for. This is called the potential lost revenue or PLR.
But HMRC won’t charge a penalty if you had a reasonable excuse for not notifying them at the right time, provided that you did so promptly after the reason for not notifying them ended.
How the penalty is calculated
The amount of the penalty is calculated by applying a percentage to the amount of tax that you owe. The percentage applied depends on whether your error (or failure) was:
- careless - a lack of reasonable care
- deliberate - such as intentionally sending incorrect information
- deliberate and concealed - such as intentionally sending incorrect information and taking steps to hide the error
While the maximum penalty HMRC can charge your company or organisation depends on the type of failure, it may be less if you:
- tell HMRC promptly and make a full disclosure of all the facts
- help HMRC to calculate what’s owed (or not repayable) and allow them access to the records needed to do so
The maximum penalty for each type of failure
| Type of failure | Maximum penalty payable |
|---|---|
| Non-deliberate | 30% of the potential lost revenue |
| Deliberate but not concealed | 70% of the potential lost revenue |
| Deliberate and concealed | 100% of the potential lost revenue |
Remember, if you took reasonable care but still made a mistake, HMRC won’t charge a penalty.
The penalty may also be less if you don’t wait until HMRC takes action before you tell them about your error. For example before they write to you or raise an assessment.
You can read more about how a failure to notify penalty is calculated in HMRC’s Compliance Handbook.
HMRC’s failure to notify penalty process before 1 April 2010
A different penalty process applies for accounting periods ending before 1 April 2010.
Penalties for not filing your Company Tax Return on time
If HMRC has sent you a ‘Notice to deliver a Company Tax Return’ and you don’t file your return on time, your company or organisation will be charged a penalty. HMRC may charge this penalty even if your company or organisation doesn’t owe any Corporation Tax.
Penalties for inaccurate Company Tax Returns, documents and information
How the penalty is calculated
The penalty is a percentage of the extra tax due when your mistake is corrected (PLR). The amount of penalties you’ll face will depend on the type of error and when you told HMRC about it.
The penalty will be less if you tell HMRC about your error before they find out about it - this is known as ‘unprompted disclosure’. If you told HMRC after they found out about the error, or if you told them because you thought they were about to find out, this is called ‘prompted disclosure’.
You should:
- tell HMRC about any errors promptly and make a full disclosure of the facts
- help HMRC to calculate what’s owed (or not repayable) and allow them access to the records needed to do so
Penalty ranges for unprompted and prompted disclosure
| Type of error | Penalty range for unprompted disclosure | Penalty range for prompted disclosure |
|---|---|---|
| Careless | 0% to 30% | 15% to 30% |
| Deliberate but not concealed | 20% to 70% | 35% to 70% |
| Deliberate and concealed | 30% to 100% | 50% to 100% |
Remember, if you took ‘reasonable care’ but still made a mistake, HMRC will not charge a penalty.
How a penalty can be reduced for disclosure
When different rules apply
There are different rules for penalties where group relief, losses, repayments or accounting timing resulting in delayed tax are involved. There are also some differences where other penalties and surcharges arise.
Suspending penalties
If you’ve made a careless error - HMRC may decide not to charge it immediately. Instead, they may suspend the penalty for a period of time if you meet certain conditions set to help you avoid a future penalty.
Penalties if you don’t keep sufficient records for Corporation Tax
Your company or organisation must keep sufficient business records to allow you to file a complete and accurate Company Tax Return.
Penalties on instalment payments
If your company’s profits for an accounting period are at an annual rate of more than £1.5 million, you must normally pay your Corporation Tax for that period in instalments.
HMRC may charge a penalty if you deliberately fail to make instalment payments, or deliberately make instalment payments that are too small.
Any penalty will be charged only after you’ve delivered your Company Tax Return (or HMRC has made a determination) and the normal due date has passed.
Read more about penalties for late or deliberately understated instalment payments in the Enquiry Manual.