Following the Autumn Budget, it’s clear that the Government is taking a more stringent approach to tax compliance.
This marks a shift from previous years, as penalties had remained largely unchanged, with inflation gradually reducing their impact.
Now we’re facing a change in the penalty system that will lead to higher fines for late filing, late payment and repeated non-compliance.
Corporation Tax penalties are increasing
From 1 April 2026, penalties for late Corporation Tax filings will be doubling. A missed deadline will incur a £200 fine, up from £100. If the return is more than three months late, the fine increases to £400.
For those who repeatedly miss deadlines, fines will rise further, with penalties of up to £2,000 for missing three consecutive filings.
HMRC expects to raise £60 million annually through these changes, though the total could be higher if the new penalties encourage better taxpayer compliance.
Wider tightening of penalties
While this marks the first increase in Corporation Tax penalties in 25 years, it’s not just Corporation Tax that’s affected.
Late payment interest will increase as tax interest rates are brought in line with movements in the Bank of England base rate.
Further penalties are being proposed for undeclared income or gains related to overseas assets.
Additionally, failure-to-notify penalties will be tougher, particularly for businesses that fail to register for VAT or PAYE on time.
Penalties for Making Tax Digital for Income Tax
As the deadline for Making Tax Digital (MTD) for Income Tax quickly approaches, the first MTD deadline in 2026 will not result in any penalties for missed submissions. However, the new, tougher penalty system will come into effect in 2027.
Each late MTD submission will earn a penalty point. After two points for annual filings and four points for quarterly filings, a £200 fine will be imposed. Further missed annual filings will incur additional £200 fines.
The penalty points will reset once outstanding submissions are filed or after 12 months of compliance for quarterly filings or 24 months for annual ones.
To ensure you remain compliant with your tax obligations, get in touch with our team today.