HMRC Could Raise Tax Penalties to 100%, Here's What to Know

Tax Queen

Tax Expert @ Pie

3 min read

HMRC is consulting on plans to increase penalties for taxpayers who don't correct mistakes after being told about them, as part of a wider push to close the gap between tax that's owed and tax that's actually collected. The proposals would affect anyone who completes a self assessment tax return, including sole traders, freelancers, and landlords, and would apply across the UK tax system. The consultation is open until early September, and no date has been confirmed for any new rules to take effect, so this is still very much a "watch this space" situation rather than something you need to act on immediately.

Does This Affect You?

If you're self-employed, run a small business, or earn rental income, this is worth paying attention to, even though nothing has changed yet. The proposals wouldn't punish honest mistakes on their own. The real risk comes if HMRC flags an error and you don't fix it in time.

Here's the distinction that matters. Right now, an error only counts as "deliberate" (HMRC's most serious category) if you knowingly gave incorrect information, for example, deliberately underreporting your income. A genuine slip, like misreading a figure on a P60 or missing a small stream of rental income, currently sits in the far less serious "careless" category. Under the new plans, that careless mistake could be reclassified as deliberate simply because you didn't act on a formal notice quickly enough after HMRC pointed it out. In other words, the mistake itself might not change, but how slowly you respond to it could.

If you want a fuller picture of how HMRC penalties currently work, including the difference between fixed, tax-geared, and daily penalties, our guide to HMRC civil penalties breaks down the different types and what triggers them.

Why Is HMRC Doing This?

The proposals sit within a broader Treasury effort to shrink the "tax gap," the difference between what HMRC believes it's owed and what it actually collects each year.

Extra funding has already gone into HMRC compliance teams, and this consultation looks like the next step: rather than simply hiring more investigators, HMRC wants stronger incentives for taxpayers to correct their own mistakes early, before an investigation even starts

What's Changing

Bigger Penalties for Uncorrected Mistakes

At the moment, careless errors on a tax return can be fined up to 30% of the tax owed. Under the proposals, that maximum could rise to 100%, but only for mistakes you don't correct after HMRC has formally told you about them.

The size of your original error stays the same either way, it's your response to being told about it that determines which end of that range you land on.

A Longer Look-Back Period

HMRC currently has six years to investigate non-deliberate errors. If your mistake gets reclassified as deliberate, that window could stretch to 20 years.

That's a significant difference if you've had inconsistencies in your returns that go back further than you'd expect anyone to check, particularly for landlords with long-running rental histories or sole traders who've been filing for decades.

HMRC says the aim is to help people who correct errors quickly, not to catch out taxpayers acting in good faith. Still, tax professionals have warned that plenty of people make innocent mistakes simply because the system is confusing, and that a slow response to a letter isn't always a sign of dishonesty. It might just mean the letter wasn't understood, or arrived at a busy time and got buried.

What You Should Do Now

Since this is still a consultation, there's nothing you need to file or change today. But it's a good moment to get into a few habits that will protect you regardless of how the rules end up looking:

Open HMRC letters promptly. Even if you can't deal with it straight away, knowing what's being asked of you and by when matters more under these proposals than ever before.

Keep records for longer than you think you need to. If look-back periods extend, having clear documentation for older tax years could make all the difference if HMRC ever asks questions.

Correct errors as soon as you spot them, rather than waiting to see if HMRC notices first.

If you've picked up a penalty before, it's also worth reading up on the appeals process. Our guide on how to appeal a self assessment penalty walks through what counts as a reasonable excuse and how to build your case.

Getting Your Self Assessment Right With Pie Tax

The easiest way to avoid this situation altogether is to make sure your return is accurate the first time, and to catch anything HMRC flags before it becomes a bigger problem.

That's exactly why Pie Tax exists, to help you file with confidence instead of guessing. If you're curious about how the app actually works day to day, from tracking expenses to submitting your return, take a look at how Pie Tax works.

We've also covered what happens if you miss a deadline in our guide to the HMRC late filing penalty, which is worth bookmarking alongside this one.

What This Means Going Forward

Nothing is changing yet, but the direction of travel is clear. HMRC wants faster corrections, and it's prepared to raise the stakes for people who don't act. It's worth using this as a nudge to get your own records in order now, rather than waiting for a letter to force the issue.

That's where Pie Tax comes in, keeping yourself assessment accurate throughout the year instead of scrambling in January. Find out more about who's behind it on our About Us page, and when you're ready, get started with Pie for free.