Understanding HMRC notices, penalties and interest

The types of charge

Late filing, late payment and errors each carry their own consequences. Filing penalties are often fixed and automatic; payment penalties and interest scale with the amount and delay. Across VAT, PAYE and corporation tax the exact regimes differ, but the direction is always the same — the longer you leave it, the more it costs.

How penalties escalate

VAT now uses a points-based late-submission system leading to penalties, plus late-payment penalties that increase the longer tax is outstanding. Companies House late-accounts penalties double for repeat lateness. The message is consistent: promptness is cheap, delay is expensive.

Interest is not optional

Interest accrues on tax paid late, at rates linked to the Bank of England base rate. It is not a penalty you can appeal away — it is the cost of holding HMRC's money. That alone makes paying on time, even by borrowing, usually cheaper than drifting into arrears.

Responding the right way

Never ignore an HMRC notice. Check it is correct, appeal genuine errors within the deadline, and if you cannot pay, ask about Time to Pay before enforcement starts. Reasonable excuses can reduce some penalties if raised promptly.

Clearing the debt cleanly

Because interest and penalties compound, clearing a tax debt quickly often beats letting it run. A working-capital facility can settle it in full and remove the escalating cost.

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See bridging a VAT or tax bill.