Whether you are a limited company, landlord, or self-employed person, receiving a call from HMRC regarding a tax investigation can be a worrying experience. In 2025, with new digital systems and stricter penalties in place, HMRC has become quicker and more precise in identifying mistakes and non-compliance.
At Taxaccolega Accountants, we’ve compiled a brief, up-to-date guide to the penalties HMRC can issue and how you can avoid HMRC penalties in the UK.
At Taxaccolega, we regularly deal with VAT registered businesses in Croydon, London, and across the UK who only realise something is wrong when HMRC sends a compliance letter. This guide exists to prevent that situation.
● Discrepancies in your self-assessment or VAT returns
● Unexplained falls in reported income
● Third-party anonymous tips or red flags
● Unreported earnings from digital platforms (eBay, Etsy, Vinted)
● Incomplete or missing records
● Careless mistake: 0–30% of tax due
● Deliberate mistake (not hidden): 20–70%
● Deliberate and hidden: 30–100%
Examples:
● Your business hits the VAT threshold
● You sell a second property and owe Capital Gains Tax
● You move income offshore
● Penalties are 10% to 100% depending on whether it was an innocent mistake or intentional.
It happens when a business or individual fails to meet tax obligations such as filing tax returns late, paying amounts late, or submitting incorrect information.
● Your business hits the VAT threshold
● You sell a second property and owe Capital Gains Tax
● You move income offshore
● Penalties are 10% to 100% depending on whether it was an innocent mistake or intentional.
● Your business hits the VAT threshold
● You sell a second property and owe Capital Gains Tax
● You move income offshore
● Penalties are 10% to 100% depending on whether it was an innocent mistake or intentional.
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What to do
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What to avoid
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● After 15 days: HMRC may charge 3% late penalty if no Time to Pay arrangement
● After 30 days: 3% penalty
● Plus, daily interest: Base rate + 4% (currently ~8.25%)
If HMRC suspects fraud or deliberate evasion, you could face:
● Criminal investigation
● Asset seizure
● Unlimited fines
● A maximum sentence of seven years in prison
● Practise cloud accounting software like Xero or QuickBooks
● Maintain digital copies of receipts and bank statements
● Voluntarily disclose any past tax mistakes
● Keep yourself updated on Making Tax Digital (MTD) deadlines
● Consult an accountant one a quarter to review your tax position
● Register for HMRC services (e.g., VAT, Self Assessment) as soon as you become eligible
● File tax returns late
● Estimate income without supporting documents
● Rely on outdated tax rules
● Assume “side hustle” income is exempt from tax
● Use offshore accounts or undeclared crypto wallets to avoid tax
Whether you are a limited company, landlord, or self-employed person, receiving a call from HMRC regarding a tax investigation can be a worrying experience. In 2025, with new digital systems and stricter penalties in place, HMRC has become quicker and more precise in identifying mistakes and non-compliance.
Note: HMRC interest charges cannot usually be appealed — they are automatic.
● Like serious illness
● Fire flood or theft
● Family grief
● HMRC online service failure
● Late payment penalties now apply after just 15 days
● Interest rates for late tax have risen to over 25%
● Making Tax Digital rollout continues — MTD for ITSA applies to those earning over £50k from April 2026. Lower thresholds will follow by 2028.
● HMRC now tracks online seller income (eBay, Vinted, Amazon, Airbnb) more closely
● Consult an accountant one a quarter to review your tax position
● Register for HMRC services (e.g., VAT, Self Assessment) as soon as you become eligible
Based in Croydon, London, we are a group of skilled, tech-savvy accountants that assist people and companies all over the UK in maintaining efficiency, compliance, and stress-free operations.
● Self-Assessment & Corporation Tax returns
● Defence and representation in HMRC enquiries
● VAT registration & filings
● Digital recordkeeping solutions (Xero, MTD setups)
● Guidance on cryptocurrency assets and offshore income
HMRC is getting stricter and smarter every year. Getting the right advice early, staying organised, and being honest are the best ways to protect yourself in 2025. Choose a trustworthy accountant who prioritises your financial well-being to avoid needless worry and expensive fines.
Take the stress out of UK taxes and accounting today — speak with a top-rated Taxaccolega chartered accountant for personalised advice tailored to your business or personal needs.
