What penalties can HMRC charge after an enquiry?

When an HMRC enquiry closes with additional tax due, several things can follow, not just one bill. First is the underpaid tax itself, established through the closure notice or discovery assessment. Second is interest, which accrues from when the tax was originally due, not from when HMRC finished checking.

Third, and often the biggest surprise, is the penalty. This is calculated as a percentage of the tax underpaid, set by your behaviour and how you disclosed the error. Fourth, in a small minority of cases involving dishonesty, HMRC can pursue criminal prosecution instead of, or as well as, the civil penalty regime.

Most enquiries end with tax, interest and a civil penalty, and never come close to the criminal threshold. The behaviour and disclosure elements are where you have the most influence over the final number.

Schedule 24 Finance Act 2007 governs penalties for inaccurate returns across Self Assessment, Corporation Tax, VAT and PAYE. Schedule 41 Finance Act 2008 covers failure to notify, such as not registering for a tax when you should have.

Both schedules use the same architecture: a behaviour category sets the outer bounds of the penalty range, and whether your disclosure was unprompted or prompted narrows it further within that range. HMRC must show its working and stay inside the statutory bracket.

Separately, HMRC's power to publish details of deliberate defaulters sits under different provisions and only applies above a statutory threshold of lost tax, where the disclosure wasn't full and unprompted.

Which entity bears which penalty depends on which return was wrong. A Corporation Tax inaccuracy penalty falls on the company; a personal Self Assessment penalty, for example on your dividend or salary income, is yours alone.

Directors sometimes assume that because the company pays the tax, the company also carries all the risk. That's not always true, particularly where personal returns, director's loan accounts or benefits in kind are involved.

If your company is still trading, penalties and interest are usually collected in the ordinary way. If you're also considering closing the company, be aware that liquidation doesn't automatically extinguish a personal liability notice or a penalty already assessed against you.

The total cost is rarely just the extra tax. Interest compounds the longer the enquiry runs, and the penalty is calculated on top of the tax, so a modest underpayment discovered several years late can produce a disproportionately large final bill once everything is added together.

Growth plan clients get free tax investigation insurance included, which covers professional fees while HMRC is enquiring, helping limit the cost of getting proper representation — see /fees for what's covered.

Early, well-organised engagement with HMRC tends to reduce both the time the enquiry takes and the final penalty percentage, because cooperation is one of the few factors within your control once an error has been found.

Don't treat the closure notice figure as the end of the story if a penalty notice hasn't arrived yet. HMRC often issues these separately, and it's worth checking the calculation rather than assuming it's correct.

Don't ignore a penalty because you're disputing the underlying tax. You generally need to appeal both, and missing the deadline on either can leave you unable to challenge it later.

Don't assume every enquiry ends in a penalty. Where reasonable care was taken and the return was simply wrong, no penalty applies at all, even though the extra tax is still due.