Around one million people missed the 31 January self-assessment deadline this year (HMRC, 2026). If you were one of them - or you filed on time but still owe money - the penalties stack up faster than most people expect. If you run a limited company, this applies alongside your year-end accounts obligations. Here is exactly what HMRC charges, when each penalty kicks in, and what you can do to limit the damage.
TL;DR: HMRC adds a 5% surcharge on unpaid self-assessment tax after 30 days, another 5% after six months, and a third 5% after twelve months. Interest runs at 7.75% from day one. You can avoid the surcharges by setting up a Time to Pay plan before the 30-day mark.
How Much Does HMRC Charge for Late Payment?
HMRC applies three separate 5% surcharges on any self-assessment tax that remains unpaid after the 31 January deadline (GOV.UK, 2026):
- 5% of the unpaid tax if you are 30 days late (charged around 1 March)
- A further 5% if the tax is still outstanding after six months (around 1 August)
- Another 5% at twelve months (around the following February)
Each surcharge is calculated on the amount still owed at that point - not the original bill. So if you pay part of what you owe, the later surcharges apply to the smaller balance. On a £10,000 tax bill left completely unpaid for a year, the three surcharges alone add up to £1,500.
Does HMRC Charge Interest on Top of Penalties?
Yes. Interest runs from 1 February - the day after the deadline - at 7.75% per year (GOV.UK, 2026). That rate is the Bank of England base rate (currently 3.75%) plus 4 percentage points. It compounds daily on whatever you owe, including any unpaid penalties.
In our experience, this is the part that catches most clients off guard. The surcharges get the headlines, but the interest quietly adds hundreds of pounds to a bill that sits unpaid for several months. On that same £10,000 example, six months of interest at 7.75% adds roughly £390 before the surcharges are even counted.
What About Late Filing Penalties?
Late filing and late payment are two separate penalty regimes, and HMRC treats filing more harshly (TaxAid, 2026):
- One day late: automatic £100 fine (even if you owe nothing)
- Three months late: £10 per day for up to 90 days - a maximum of £900
- Six months late: 5% of the tax due or £300, whichever is higher
- Twelve months late: a further 5% or £300, whichever is higher
A taxpayer who files a year late and owes £10,000 faces up to £2,000 in filing penalties alone, on top of the payment penalties and interest. What we see most often is people who are late filing because they are late paying - they assume there is no point submitting the return until they have the money. That logic costs them twice. If you are weighing up whether to stay as a sole trader or form a limited company, the penalty structure is worth factoring into your decision.
Can You Avoid Penalties With a Time to Pay Plan?
If you know you cannot pay by 31 January, a Time to Pay arrangement with HMRC is the single most effective way to avoid the 5% surcharges. You can set one up online through your HMRC account if you owe £30,000 or less and apply within 60 days of the payment deadline (GOV.UK, 2026).
The plan spreads your bill over up to 12 monthly direct debit payments. HMRC will still charge interest at 7.75%, but the late payment surcharges are suspended for the duration of the arrangement. For debts over £30,000 or where you need longer than 12 months, you will need to call HMRC on 0300 200 3401. Working with a professional accountant can help you present your case more effectively.
One question clients always ask is whether they should wait and see if they can find the money first. The answer is almost always no. Setting up the plan early protects you from the surcharges, and you can still pay it off ahead of schedule without penalty.
Can You Appeal an HMRC Late Payment Penalty?
You have 30 days from the date on the penalty notice to appeal (GOV.UK, 2026). HMRC will consider a "reasonable excuse" - something unexpected and outside your control that prevented you from paying on time. Serious illness, a close bereavement, or a genuine HMRC system outage can qualify.
What does not count: relying on an accountant who missed the deadline, not having enough money in the bank, or finding the online system confusing. HMRC takes a strict line on these. If your appeal is rejected, you can ask for an independent review or take it to the tax tribunal, though for most small penalties the cost of that process outweighs the penalty itself.
What Changes Under the New Penalty Points System?
From April 2026, HMRC is rolling out a points-based system for late submissions as part of Making Tax Digital (GOV.UK, 2026). Under this system, each missed deadline earns a penalty point rather than an immediate fine. Once you hit the threshold - four points for quarterly filers, two for annual filers - a £200 penalty applies for that breach and every subsequent one.
For the 2026-27 tax year, there is a soft landing period: HMRC will not charge points for late quarterly updates, giving taxpayers time to adapt. Points expire after 24 months of clean compliance. This system initially applies to sole traders and landlords earning over £50,000 who are mandated into MTD for Income Tax, with wider rollout from April 2027.
The late payment penalty regime itself - the 5% surcharges described above - remains unchanged for now.
How to Limit the Damage If You Already Owe
If you have already missed the deadline, the priority order is straightforward:
File your return first - even if you cannot pay. The filing penalties are harsher and run independently of payment penalties. Every day you delay filing after three months costs you £10.
Pay whatever you can immediately. The surcharges and interest apply to the outstanding balance, so partial payment reduces everything that follows. Even paying half of what you owe cuts the surcharges roughly in half.
Set up a Time to Pay plan before the 30-day mark. If the first 5% surcharge has not triggered yet, you can still avoid it entirely. If you are past 30 days, a plan still prevents the six-month and twelve-month surcharges from landing.
Keep records. If something genuinely prevented you from paying - hospital admission, a family emergency - document it now. You will need evidence if you appeal later.
Frequently Asked Questions
Does HMRC charge penalties if I file on time but pay late?
Yes. Filing and payment penalties are completely separate. You can file your return by 31 January and still face the 5% surcharges if your tax bill remains unpaid after 30 days. Around 11.48 million people filed on time for 2024-25 (HMRC, 2026), but many of those still owed money past the payment deadline.
What is the maximum penalty for a year of non-compliance?
For someone who neither files nor pays for a full year on a £10,000 tax bill, the combined penalties can exceed £4,000 - roughly £2,000 in filing penalties plus £1,500 in payment surcharges, plus around £775 in interest. The exact amount depends on when partial payments are made.
Can I set up a Time to Pay plan after the 30-day surcharge?
Yes, but the first 5% surcharge will already have been applied. A plan set up after 30 days still prevents the six-month and twelve-month surcharges. It is always worth contacting HMRC, even if you are late.
Will the new penalty points system replace late payment surcharges?
Not immediately. The points-based system applies to late submissions only - missing quarterly update deadlines or annual filing deadlines. The late payment surcharges (the three 5% charges) continue under the existing rules for now. HMRC has indicated reforms to late payment penalties will follow, but no date has been set.
Not sure where you stand with HMRC, or want help setting up a Time to Pay arrangement before the next surcharge hits? Get in touch - our tax team handles self-assessment penalty situations regularly and can walk you through your options.