HMRC Issues Penalties Automatically. They Are Not Final.
If your limited company files its Corporation Tax return (CT600) late, HMRC issues a penalty automatically. The first offence is £100. If you are six months late, it is £200 or 10% of the tax due, whichever is higher. At 12 months, it can reach 20% of the tax due.
These penalties land on your doormat without any human review. HMRC does not check whether you had a good reason. They just send the notice.
But here is the thing: you can appeal. And a limited company accountant who knows the penalty regime can often get the penalty reduced or cancelled entirely.
At Holloway Davies, we are ICAEW qualified. We handle these appeals regularly for directors who missed a deadline through no fault of their own. This article explains exactly how the appeal process works, what HMRC accepts as a reasonable excuse, and what you need to do if a penalty lands on your desk.
When Does HMRC Issue a Late Filing Penalty?
Your limited company must file its annual accounts and Company Tax Return (CT600) at Companies House and HMRC within 9 months of the accounting year-end. For a company with a 31 March year-end, the deadline is 31 December.
If you miss that deadline, HMRC issues:
- First offence: £100 flat penalty.
- 3 months late: Another £100.
- 6 months late: The greater of £200 or 10% of the unpaid tax.
- 12 months late: The greater of £200 or 20% of the unpaid tax (or 10% if the return is filed voluntarily).
These penalties apply even if your company has no tax to pay. A nil return filed late still triggers the £100 penalty. The system is strict.
What Is a Reasonable Excuse?
HMRC publishes guidance on what counts as a reasonable excuse. In practice, it is narrower than most directors expect. Here is what typically works:
- Serious illness: You or a close family member were hospitalised or incapacitated around the deadline. Medical evidence helps.
- Death of a close family member: Bereavement that prevented you from organising the filing. HMRC usually accepts a period of 2-4 weeks around the event.
- Fire, flood, or theft: Physical destruction of records or IT systems. Evidence from insurers or police helps.
- HMRC system failure: If you tried to file online and HMRC's system was down, that can count. You need evidence of the attempt (screenshots, error messages).
- Postal delay: Only if you posted the return well before the deadline and it arrived late. HMRC is sceptical of this one, so keep proof of posting.
- Reliance on a third party: If your accountant or bookkeeper let you down, that is not automatically a reasonable excuse. But if you gave them all the information well before the deadline and they failed to file, HMRC may accept it. Your limited company accountant can argue this on your behalf.
What Does Not Count as a Reasonable Excuse?
HMRC regularly rejects these excuses:
- I was too busy.
- I forgot.
- I did not know the deadline.
- My previous accountant did not tell me.
- The return was complicated.
- I was waiting for information from a third party.
These are not excuses. They are explanations. HMRC expects directors to plan ahead, set reminders, and engage professional help if the return is complex. If you rely on a limited company accountant, you need to give them the information early enough for them to do the work.
How the Appeal Process Works
Step 1: Check the Penalty Notice
The penalty notice arrives in the post or via your HMRC online account. It tells you the amount, the period it covers, and the deadline for appealing. You usually have 30 days from the date of the notice to appeal, though HMRC can extend this if you have a reasonable excuse for the late appeal too.
Step 2: Gather Evidence
Your limited company accountant will ask you for evidence supporting the excuse. This might be hospital discharge letters, death certificates, insurance claim references, or screenshots of failed online submissions. The stronger the evidence, the better the chance of success.
Step 3: Write the Appeal Letter
This is where an experienced accountant adds real value. The appeal letter must:
- State the penalty reference and amount.
- Explain the reasonable excuse clearly and concisely.
- Provide evidence to back up the excuse.
- Confirm that the excuse has now been resolved (if it was a temporary issue).
- Request cancellation of the penalty.
We write these letters on behalf of our clients. HMRC responds to a professionally written appeal far more favourably than a rushed email from a stressed director.
Step 4: HMRC Reviews the Appeal
HMRC aims to respond within 15 working days. In practice, it can take 4-6 weeks. They will either accept the appeal and cancel the penalty, or reject it and explain why.
Step 5: If HMRC Rejects the Appeal
You can escalate to a statutory review by a different HMRC officer. If that also fails, you can take the case to the First-Tier Tribunal (Tax Chamber). This is rare. Most appeals are resolved at the first stage if the evidence is solid and the excuse is genuine.
Real Examples of Successful Appeals
Example 1: Hospitalisation
A director of a Manchester-based software consultancy was hospitalised for emergency surgery three weeks before the filing deadline. He was in hospital for 10 days and unable to access his records. His limited company accountant submitted an appeal with the hospital discharge summary and a note from the GP. HMRC cancelled both the £100 penalty and the subsequent £100 penalty for the second month. Total saved: £200.
Example 2: HMRC system failure
A freelance consultant in Bristol tried to file the CT600 on the deadline day. HMRC's online system was down for maintenance (it happened on a Sunday). She took screenshots of the error message and filed the return the next day. Her accountant appealed with the screenshots. HMRC cancelled the penalty.
Example 3: Reliance on a third party
A husband-and-wife Ltd company running a Birmingham café gave their bookkeeper all the year-end information in January. The deadline was 31 March. The bookkeeper fell ill and did not file until April. The accountant appealed, showing the email chain proving the information was provided in good time. HMRC accepted the appeal because the directors had taken reasonable care.
What Happens If You Do Not Appeal?
If you do not appeal within 30 days, the penalty becomes final. HMRC will pursue it through their debt collection process. They can deduct the amount from any future tax repayments or issue a court order. For larger penalties (the 10% and 20% ones), this can be significant money.
Ignoring the penalty does not make it go away. It gets worse.
Can You Appeal a Penalty That Is Already Paid?
Yes. Paying the penalty does not waive your right to appeal. In fact, it is often better to pay first to stop interest and late payment penalties from accruing. Then appeal. If HMRC accepts the appeal, they will refund the penalty plus any interest you paid on it.
How a Limited Company Accountant Adds Value Beyond the Appeal
A good limited company accountant does more than write appeal letters. They help you avoid penalties in the first place. Here is what we do for our clients:
- Set calendar reminders for all filing deadlines, including Corporation Tax, VAT, PAYE, and Confirmation Statement.
- Request your year-end information at least 3 months before the deadline.
- File the CT600 and accounts as soon as the information is complete, not on the last day.
- Monitor HMRC correspondence so nothing slips through the cracks.
- Handle the entire penalty appeal process if something does go wrong.
That last point is the one most directors do not think about until they need it. When a penalty notice lands, you want someone who knows the system, the forms, and the arguments that work.
Common Mistakes Directors Make When Appealing
- Appealing too late. The 30-day window is tight. If you miss it, you need a separate reasonable excuse for the late appeal.
- Giving too much information. HMRC does not need your life story. Stick to the facts that support the excuse.
- Blaming the accountant. If your accountant was at fault, that can be a reasonable excuse, but only if you gave them the information in good time. If you gave them the information a week before the deadline, that is on you.
- Not keeping evidence. HMRC will not take your word for it. They want documents.
What to Do If You Receive a Penalty Notice
- Do not ignore it.
- Check the deadline for appealing (usually 30 days from the date on the notice).
- Contact your limited company accountant immediately.
- Gather any evidence that supports your excuse.
- Let your accountant handle the appeal.
If you do not currently have an accountant, or if your accountant does not handle penalty appeals, we can help. Contact us and we will review your penalty notice and advise on the best course of action.