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Corporation Tax Penalties
Corporation Tax penalties can arise if your company misses filing deadlines, makes payment errors, or submits inaccurate information to HMRC. Understanding how these penalties work — and how to avoid them — can save your company significant costs and hassle.
Corporation Tax penalties can arise if your company misses filing deadlines, makes payment errors, or submits inaccurate information to HMRC. Understanding how these penalties work — and how to avoid them — can save your company significant costs and hassle.
When penalties apply
HMRC can charge your company a penalty in several situations:
- You fail to tell HMRC your company is liable for Corporation Tax
- You don't file your Company Tax Return on time
- You submit inaccurate information on your return
- You don't keep adequate business records
Even if your company owes no Corporation Tax, you can still be penalised for missing deadlines or failing to file.
Penalties for not registering for Corporation Tax
If your company has Corporation Tax to pay, you must tell HMRC within 12 months of the end of your Corporation Tax accounting period — even if you haven't received a 'Notice to deliver a Company Tax Return'.
Failing to notify HMRC is called a 'failure to notify' penalty. The penalty is based on the potential lost revenue (PLR) — the amount of tax your company owes.
How the penalty is calculated
The percentage applied depends on the type of failure:
| Type of failure | Maximum penalty |
|-----------------|-----------------|
| Non-deliberate (careless) | 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 |
If you took reasonable care but still made a mistake, HMRC will not charge a penalty.
The penalty may be reduced if you:
- Tell HMRC promptly and make full disclosure
- Help HMRC calculate what's owed
- Give them access to necessary records
- Report the error before HMRC contacts you
Penalties for late Company Tax Returns
If HMRC has sent you a 'Notice to deliver a Company Tax Return' and you don't file on time, your company will be charged a penalty. This applies even if you owe no Corporation Tax.
When HMRC's records show your company has failed to deliver its return by the required filing date, they will issue a penalty determination using form CT211.
Penalties for inaccurate returns
If you make an error on your Company Tax Return, the penalty is calculated as a percentage of the extra tax due when the mistake is corrected.
The penalty depends on:
- The type of error
- Whether you told HMRC before they discovered it (unprompted disclosure) or after (prompted disclosure)
Penalty ranges
| Type of error | Unprompted disclosure | 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% |
Again, if you took reasonable care but still made a mistake, no penalty applies.
Suspended penalties
For careless errors, HMRC may suspend the penalty rather than charge it immediately. They'll set conditions you must meet over a period of time to help you avoid future penalties. If you meet these conditions, the suspended penalty won't be charged.
How to avoid penalties
HMRC expects you to take reasonable care over your company's tax affairs. Examples include:
- Making sure your Company Tax Return is accurate and filed on time
- Ensuring all company accounts, computations, claims and calculations are correct
- Telling HMRC promptly if your company has chargeable profits but you haven't received a notice to file a return (within 12 months of the end of your accounting period)
- Keeping sufficient records to support your return and any claims
- Providing HMRC with information when they request it
- Asking HMRC if you're unsure about anything and following their advice
What counts as "reasonable care" depends on your company's individual circumstances.
If you discover a mistake
If you find you've made an error or failed to tell HMRC something, tell them immediately. Prompt disclosure may reduce the penalty you face or mean you don't pay one at all.
The earlier you tell HMRC — particularly before they contact you — the lower the penalty is likely to be.
Record-keeping requirements
Your company must keep sufficient business records to allow you to file a complete and accurate Company Tax Return. Failing to keep adequate records can result in a penalty.
Appealing a penalty
If you don't agree with a penalty HMRC has charged, you can appeal the decision.
You won't be charged a penalty if you had a reasonable excuse for not meeting your obligations, provided you corrected the situation promptly after the reason ended.
Sources
- Corporation Tax: penalty determinations (CT211 Notes)
- Corporation Tax: penalties
- Tax appeals
- Prepare annual accounts for a private limited company: Penalties
- Running a limited company: Company and accounting records
This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.
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