HMRC drops record number of tax return fines

HMRC overturned more than 48,000 tax return penalties last year because of a lack of “human oversight” with its automated system.

Taxpayers successfully appealed a record 48,189 fines in 2025-26, a 4pc increase on the previous year, according to the tax office’s latest annual accounts. Fines were cancelled for 65pc of those appealed.

The tax authority issues automatic fines to taxpayers and businesses that miss a deadline for self-assessment, VAT or payment of tax. While this digital system allows HMRC to issue penalties automatically, experts said it also makes it easier for taxpayers to challenge them through the online appeals process.

The rise in overturned penalties came despite the total number issued falling from around 9.1 million in 2024-25 to around 8.1 million in the most recent tax year.

Late filing penalties can be overturned for a variety of reasons, including when a taxpayer was delayed through no fault of their own.

Experts said that taxpayers had become increasingly successful in challenging automated fines as a result of HMRC’s digital appeals process. In 2020-21, only 5,499 appeals were successful.

HMRC said in its latest annual accounts that the online system made it “more likely” that customers would appeal and also allowed fines to be “quickly and efficiently” removed.

Andrew Park, of accountancy firm Price Bailey, said: “Because these are high-volume, automatically generated fines, they lack human oversight at the point of issuance. The high success rate of these appeals suggests that many more taxpayers could successfully challenge unfair penalties if they felt confident navigating the process.”

Taxpayers typically have to provide a “reasonable excuse” if they want to avoid a fine for missing a deadline. These include bereavements and issues with HMRC’s online service.

Sean Drury, of tax firm Blick Rothenberg, said: “There’s an awful lot of these automatic penalty notices that go out which are actually incorrect. For example, someone leaves the UK, no longer needs to file a tax return, but HMRC’s system still thinks they should be filing in the future and therefore issues penalty notices.”

Missing the self-assessment deadline results in an automatic £100 penalty, with additional penalties rolling up over time.

For businesses, failing to submit a VAT return on time results in a penalty point, with a £200 fine due once they reach their penalty threshold, set by their accounting period.

Anyone who believes they have been incorrectly fined for filing late can appeal to HMRC within 30 days of the penalty notice being issued.

For taxpayers within the scope of Making Tax Digital, HMRC has replaced automatic fines with a new penalty-points system. Instead of an immediate £100 fine for a missed quarterly return, taxpayers will receive a penalty point. Four missed deadlines in two years will result in four points and a £200 fine.

Mr Park said: “Transitioning to a points-based system is a much fairer approach for everyday taxpayers. Crucially, it relieves HMRC of a massive administrative burden, allowing their teams to focus resources on genuine non-compliance rather than processing appeals for accidental, one-off mistakes.”

An HMRC spokesman said: “Our aim is to help people to get their tax right and avoid fines altogether, and about 11.5 million customers filed their 2024-25 tax return on time. If you no longer need to file a tax return, including because your earnings are lower, check using our online tool and then tell us to avoid a penalty.

“Those who believe they’ve incorrectly received a penalty for filing late can appeal. We can cancel penalties when a reasonable excuse is provided.”