Received an HMRC Penalty? How to Cancel It Legally
What you need to check before paying, when you can appeal, and what reasons HMRC may accept
Have you received a letter from HMRC with a penalty of £100, £300 or even more than £1,200?
Do not panic.
But do not ignore it either.
And, very importantly, do not rush to pay it before checking whether it can be legally challenged.
Many people receive HMRC penalties for Self Assessment, CIS, unpaid tax, unfiled returns, late registrations or tax obligations they did not properly understand. Some penalties are correct and must be dealt with quickly. Others can be reduced or even cancelled completely if there is a genuine basis and clear evidence.
The problem is that many taxpayers make one of the following mistakes:
• they ignore the letter
• they pay immediately without checking
• they appeal with a weak explanation
• they send an emotional message without evidence
• they blame the accountant, HMRC or the fact that they “didn’t know”
• they do not file the outstanding return and the penalties continue to increase
This article explains, step by step, how to check an HMRC penalty, when it can be cancelled legally, what “reasonable excuse” means, which excuses usually do not work, and how to prepare a professional appeal.
In short: can you cancel an HMRC penalty?
Yes, in some cases.
But not every penalty can be cancelled.
An HMRC penalty may be challenged if there is a correct legal or factual reason, for example:
• HMRC issued the penalty incorrectly
• you did not need to file that return
• the return had already been submitted
• the payment had already been made
• HMRC used incorrect information
• you had a genuine and documented reason for the delay
• you were prevented by serious circumstances
• you acted quickly as soon as the issue was discovered
On the other hand, a penalty is much harder to cancel if the reason is only:
• “I forgot”
• “I didn’t know”
• “I didn’t receive a reminder”
• “I didn’t have money”
• “I found the HMRC website difficult”
• “my accountant was supposed to deal with it”
• “I didn’t feel like logging into my HMRC account”
• “I thought it didn’t matter”
HMRC looks at the facts, not only the intention.
First: what type of penalty did you receive?
Before doing anything, you need to identify exactly what penalty you received.
Not all HMRC penalties are the same.
You may receive penalties for:
• late filing of a Self Assessment Tax Return
• late payment of tax
• late registration for Self Assessment
• failure to notify
• incorrect returns
• failure to keep accounting records
• VAT
• PAYE
• CIS
• Corporation Tax
• late filing at Companies House, which is separate from HMRC
This article focuses mainly on HMRC penalties connected to Self Assessment and personal tax, but the basic principles apply in many other tax situations too.
Important: an HMRC penalty is not the same as a Companies House penalty.
If you have a Limited Company, you may have two separate problems:
• HMRC for tax, Self Assessment, PAYE, VAT or Corporation Tax
• Companies House for late accounts or late Confirmation Statement
They must be dealt with separately.
Why it is important not to ignore the letter
An ignored HMRC penalty can become much more expensive.
For Self Assessment, penalties may start with £100 for late filing of the return. After 3 months, daily penalties of £10 per day may apply, up to a maximum of £900. After 6 months and 12 months, additional penalties of £300 or 5% of the tax due may apply, whichever is greater.
If there is also unpaid tax, late payment penalties and interest may also apply.
At the time this article was written, the HMRC late payment interest rate is 7.75% from 9 January 2026, although this rate can change.
For this reason, a £100 penalty should not be treated as a small issue if there is an unfiled return or unpaid tax behind it.
The real problem is not only the initial amount.
The problem is that the system may continue adding penalties, interest and debt collection letters.
Do not rush to pay before checking
Important: this does not mean that you should never pay.
In some cases, it may be recommended to pay the penalty or tax to limit interest and collection risk, then continue the appeal. If the appeal is accepted, HMRC may refund the amount paid, if you have no other tax debts.
But the main point is this:
Do not pay blindly without checking whether the penalty is correct.
Before paying, check:
• which tax year the penalty relates to
• what type of penalty it is
• when it was issued
• whether the return was genuinely required
• whether you already filed the return
• whether you already paid the tax
• whether HMRC had the correct address
• whether you had a genuine reason for the delay
• whether the penalty can be cancelled by withdrawing the return
• whether you can appeal within the deadline
Case 1: The penalty is wrong
Sometimes the penalty is issued incorrectly.
Examples:
• you submitted the return, but HMRC did not process it correctly
• you filed by post, but there was a processing delay
• you paid the tax, but the payment was not allocated correctly
• HMRC sent the penalty for the wrong year
• the UTR used was incorrect
• the return should not have been requested
• you were removed from Self Assessment, but the system continued issuing penalties
In these situations, it is not necessarily about “reasonable excuse”.
It may be a factual or administrative error.
What should be done?
You need to explain clearly why the penalty is wrong and send evidence.
Useful evidence may include:
• filing confirmation
• submission receipt
• HMRC online confirmation
• proof of payment
• bank statement
• previous correspondence with HMRC
• confirmation that you no longer needed to file the return
• HMRC letters showing the true position
Case 2: You did not need to file Self Assessment
This is one of the most important situations.
If HMRC asked you to file a return, but you no longer had an obligation to file Self Assessment, you may be able to request cancellation of the penalty by asking HMRC to withdraw the return request.
For example:
• you stopped self-employment
• you no longer had income above the relevant thresholds
• you no longer had CIS income
• you no longer had rental income
• you were no longer a director with a Self Assessment obligation
• you no longer had dividends or other reportable income
• you returned to Romania and had no further UK income
• HMRC did not update your position correctly
In this situation, the correct strategy may be:
• check the tax year
• check whether HMRC issued a notice to file
• explain why you no longer needed to file
• request withdrawal of the return
• request cancellation of the penalty
• request closure of Self Assessment for the future, if you have no further obligations
This is not just an “excuse”.
It is a check of the actual tax obligation.
If HMRC accepts that the return did not need to be filed, the penalty may be cancelled.
Case 3: You had a “reasonable excuse”
A “reasonable excuse” means a genuine reason that prevented you from meeting your tax obligation on time.
It is not enough for the reason to be unpleasant or inconvenient.
It must be something that had a real impact on your ability to file the return or pay the tax on time.
In addition, you must show that you acted as soon as reasonably possible after the reason ended.
This is very important.
If you had a serious problem in January but then waited another 8 months without doing anything, HMRC may say that the original reason no longer justifies the full delay.
What reasons may HMRC accept?
HMRC may consider serious reasons such as:
• death of a partner or close relative close to the deadline
• unexpected hospitalisation
• serious or life-threatening illness
• serious mental health problems
• disability or medical difficulties that caused the delay
• fire, flood or theft that prevented you from preparing the return
• genuine technical problems with HMRC systems or software
• computer or software failure exactly when you were preparing the return
• unexpected postal delays
• situations where you misunderstood the legal obligation in a way that can be explained and supported
• situations where you reasonably relied on someone else, but that person failed to act
These reasons must be documented.
HMRC does not cancel penalties just because a story sounds convincing. Evidence, chronology and the actions taken immediately after the problem was discovered are what matter.
What evidence can help support a reasonable excuse?
The evidence depends on the situation.
For illness or hospitalisation
• medical letter
• hospital discharge documents
• appointment letters
• treatment evidence
• documents showing the period affected
For death in the family
• death certificate
• travel documents
• proof of close relationship
• explanation of the impact on you
For HMRC online problems
• screenshot of the error
• date and time of the attempt
• error message
• proof that you tried to submit
• correspondence with HMRC
• ticket/reference number, if available
For fire, flood or theft
• police report
• insurance report
• photographs
• emails
• proof of lost documents
For moving from the UK or missed correspondence
• proof of leaving the UK
• proof of new address
• flight/ferry tickets
• employment contract in Romania
• proof that you acted immediately when you became aware
• HMRC letters received late
• correspondence with HMRC
For accountant or agent issues
• contract/engagement letter
• emails sent
• proof that you provided the information on time
• proof that you followed up
• explanation of why it was reasonable to rely on that person
Important: simply saying “I had an accountant” is not automatically enough.
You need to show that you acted reasonably and did not ignore the obligation.
What excuses does HMRC almost never accept?
Some reasons are usually very weak.
“I forgot”
This is one of the most common explanations, but it is almost never enough.
HMRC expects people registered for Self Assessment to know their deadlines.
“I did not receive a reminder”
Not receiving a reminder is generally not enough.
If you have a filing obligation, the deadline exists even if you do not receive a reminder.
“I did not have money to pay”
Lack of funds is generally not a reasonable excuse for non-payment.
If you cannot pay, the correct approach is to contact HMRC and discuss options, not ignore the deadline.
“The HMRC website is hard to use”
Difficulty using the online system is usually not enough.
If you have problems, you need to seek help before the deadline.
“I made a mistake in the return”
A mistake in the return does not automatically cancel the penalty.
A correction may be needed, but that does not automatically mean the delay was justified.
“My accountant did not tell me”
This is a sensitive area.
Sometimes reliance on an adviser may be relevant, but it is not an automatic excuse.
HMRC may say that the final responsibility remains with the taxpayer.
To have a chance, you need to show that you gave the information on time, followed up, and had reasonable grounds to believe that the professional would file the return.
The difference between late filing and late payment
Many taxpayers confuse these two things.
Late filing penalty
This is the penalty for not submitting the return on time.
It can apply even if there is no tax to pay.
For example, if HMRC requested a Self Assessment Tax Return and you did not submit it by the deadline, you can receive a penalty even if the return would have shown £0 tax due.
Late payment penalty
This is the penalty for not paying the tax on time.
It applies when there is unpaid tax.
Interest
Interest is separate from penalties.
If you have unpaid tax, HMRC may charge interest on the outstanding amount.
At the time this article was written, late payment interest is 7.75% from 9 January 2026, but the rate can change.
This distinction is important because sometimes you may be able to challenge the penalty, but still need to pay the tax and interest if the amount was genuinely due.
How to appeal step by step
If you received an HMRC penalty and believe it may be challenged, follow these steps.
Step 1: Read the HMRC letter carefully
Check:
• what type of penalty it is
• which tax year it relates to
• the penalty date
• the penalty amount
• the appeal deadline
• the UTR or reference number
• whether the letter mentions an appeal form
• whether the penalty is for late filing or late payment
Do not assume you know what it is about just because you see £100.
Step 2: Check whether the return was required
Ask yourself:
• Did HMRC officially request the return?
• Did you have income that had to be reported?
• Were you self-employed?
• Did you have CIS income?
• Did you have rental income?
• Did you have dividends?
• Were you a director?
• Did you receive Child Benefit and fall within the High Income Child Benefit Charge?
• Did you leave the UK?
• Did you close Self Assessment correctly?
• Did you receive confirmation from HMRC that you no longer needed to file?
If the return was not required, it may be more appropriate to request withdrawal of the return rather than making a standard appeal only.
Step 3: File the outstanding return, if it is required
If the return was required, filing it as quickly as possible is essential.
Do not allow penalties to continue increasing.
Even if you want to appeal, HMRC may consider it important that you acted quickly.
If there is tax to pay, also check payment options or Time to Pay if you cannot pay in full immediately.
Step 4: Prepare a chronological explanation
A good appeal must tell the story in order.
Include:
• what tax obligation you had
• what deadline you missed
• what happened
• why you could not file or pay on time
• the exact period affected
• when you became aware of the penalty
• what you did immediately afterwards
• what documents you are attaching
• what you are specifically asking HMRC to do
Do not just write:
“Please cancel the penalty.”
Write clearly:
“I request cancellation of the penalty for tax year X because…”
Step 5: Attach evidence
An appeal without evidence is much weaker.
If you were hospitalised, attach medical documents.
If you had online problems, attach screenshots.
If you left the UK, attach evidence of departure and your new address.
If you filed the return, attach confirmation.
If you paid, attach proof of payment.
Do not send 50 documents with no explanation.
Send clear, relevant documents, numbered logically.
Step 6: Submit the appeal correctly
For Self Assessment, an appeal can usually be made online or using the correct form, such as SA370 or SA371, depending on the situation.
In many cases, form SA370 is used for Self Assessment penalties connected to late filing or late payment.
If you do not have an appeal form, you can send a signed letter to the relevant HMRC office.
Include:
• full name
• UTR
• National Insurance number, if relevant
• current address
• affected tax year
• penalty date
• penalty amount
• reason for appeal
• attached evidence
• what you are asking HMRC to do
Step 7: Respect the 30-day deadline
Normally, you must appeal within 30 days of the penalty date.
If you have missed the deadline, it does not automatically mean everything is lost, but you must also explain why the appeal is late.
For example:
• you did not receive the letter on time
• you were hospitalised
• you were out of the country
• you only found out when you logged into your HMRC account
• correspondence was sent to an old address
• you had a serious documented issue
The faster you act, the stronger your position.
Step 8: Wait for HMRC’s response
After you submit the appeal, HMRC may:
• accept the appeal
• reject the appeal
• request additional information
• confirm that the return must still be filed
• confirm that the penalty remains
• withdraw the return and cancel the penalty
• offer an internal review
It is important to keep all confirmations and correspondence.
What if HMRC rejects the appeal?
If HMRC rejects the appeal, it does not necessarily mean you have no further options.
Depending on the case, you may:
• request an internal HMRC review
• send additional evidence
• clarify errors in the decision
• take the matter further to the First-tier Tribunal
• pay the amount if there is no genuine basis to continue challenging it
Not every case is worth taking to tribunal.
You need to consider the amount involved, chances of success, evidence, time and costs.
For a small penalty, sometimes the practical solution is to pay and close the matter.
For large penalties or clear cases, it may be worth continuing.
Simple appeal structure
Below is a simple structure you can use as a starting point.
Do not copy it mechanically without adapting it to your situation.
Subject: Appeal against Self Assessment penalty for tax year [YEAR]
Dear HMRC,
I am writing to appeal against the Self Assessment penalty issued for the tax year [YEAR], dated [DATE], reference [REFERENCE/UTR].
I believe the penalty should be cancelled because [explain clearly: I had a reasonable excuse / the return was not required / the penalty was issued incorrectly].
The relevant timeline is as follows:
[Date]: [What happened]
[Date]: [What prevented you from filing/paying]
[Date]: [When the issue ended]
[Date]: [When you became aware of the penalty]
[Date]: [What action you took]
I have now taken steps to correct the position by [filing the tax return / paying the tax / contacting HMRC / asking for the return to be withdrawn].
I have attached the following evidence:
[Document 1]
[Document 2]
[Document 3]
I respectfully request that HMRC cancels the penalty based on the facts and evidence provided.
Kind regards,
[Name]
[UTR]
[National Insurance Number]
[Current Address]
Practical examples
Example 1: Self-employed person who no longer needed to file
Ion was self-employed in the UK but stopped trading in 2022.
He moved to Romania and had no further UK income.
HMRC continued requesting returns and issued penalties for 2023/24.
In this case, it must be checked whether the return was required.
If it was not required, a withdrawal of the return and cancellation of the penalty can be requested.
Useful documents:
• date trading ceased
• proof of leaving the UK
• proof that there was no further UK income
• last invoice
• correspondence with HMRC
• current address
Example 2: Person hospitalised close to the deadline
Maria had to submit Self Assessment by 31 January.
In January, she was unexpectedly admitted to hospital and could not manage her tax affairs.
After discharge, she submitted the return as quickly as she could and appealed.
This may be a strong reasonable excuse if there are medical documents and prompt action after recovery.
Example 3: “I did not receive a reminder”
Andrei did not file the return and explains that he did not receive a reminder from HMRC.
This reason is usually weak.
If HMRC issued a notice to file, the obligation exists even if the reminder did not arrive.
Andrei should check whether the return was actually required or whether there are other genuine reasons, rather than relying only on the lack of reminder.
Example 4: The accountant did not file the return
Elena sent the documents to the accountant before the deadline, but the return was not filed.
This is not automatically an accepted excuse.
However, there may be a chance if Elena can show that:
• she provided the information on time
• she followed up
• she had reasonable grounds to believe the return would be filed
• she acted immediately when she found out about the penalty
• she has emails and documents confirming the timeline
Mistakes that can destroy your appeal
1. Sending a message that is too short
“Please cancel the penalty, I didn’t know” is not enough.
2. Not attaching evidence
Without evidence, HMRC has fewer reasons to accept your explanation.
3. Inventing reasons
Do not exaggerate and do not invent circumstances.
HMRC can check information.
4. Not filing the outstanding return
If the return was required and you do not file it, penalties may continue.
5. Missing the appeal deadline
The deadline is generally 30 days.
If you miss it, you must also explain the late appeal.
6. Confusing the penalty with the tax
Cancelling the penalty does not automatically cancel the tax.
If the tax was due, it may still need to be paid.
7. Not checking whether the return was required
Sometimes the best solution is not a standard appeal, but a request to withdraw the Self Assessment Tax Return.
When is it worth asking for professional help?
It is worth asking for help if:
• the penalties are large
• you have several outstanding years
• you were self-employed or CIS
• you left the UK
• you have UK rental income
• you have a Limited Company
• you received several HMRC letters
• you do not know whether the return was required
• you need SA109
• you have tax to recover
• HMRC rejected your appeal
• you do not know what documents to send
A good appeal is not just a nicely written letter.
It is a combination of:
• tax analysis
• checking the obligation
• chronology
• documents
• HMRC rules
• clear arguments
• correct communication
Quick checklist before appealing
Before sending the appeal, check:
• What type of penalty did you receive?
• Which tax year is it for?
• What is the penalty date?
• Are you within the 30-day deadline?
• Was the return required?
• Have you filed the return?
• Have you paid the tax, if it was due?
• Do you have a genuine reasonable excuse?
• Do you have documents?
• Have you explained the chronology?
• Have you clearly asked HMRC for what you want?
• Have you kept a copy of everything you send?
If you cannot answer these questions clearly, the appeal needs to be prepared more carefully.
Conclusion
If you received a penalty from HMRC, do not automatically assume that it must be accepted without checking.
Some penalties are correct.
Others can be challenged.
Some can be cancelled because the return was not required.
Others can be cancelled because you had a genuine and documented reasonable excuse.
But the key is to act quickly and professionally.
Do not ignore the letter.
Do not send vague explanations.
Do not invent reasons.
Do not wait for months.
Check the penalty, prepare the evidence, file the return if required and submit the appeal correctly, within the deadline.
Received an HMRC penalty?
DCTaxAgent Ltd can help you check whether the penalty can be legally challenged, prepare the appeal and clarify the situation with HMRC.
We can help with:
• HMRC penalty appeals
• outstanding Self Assessment
• request to withdraw Self Assessment Tax Return
• closing Self Assessment
• closing self-employment
• CIS tax refund
• final returns after leaving the UK
• SA109 and tax residence
• P85, where applicable
• communication with HMRC
• checking tax, interest and penalties
DCTaxAgent Ltd
Accounting | Tax | Advisory
Phone / WhatsApp: 07587 532646
Email: contact@dctaxagent.co.uk
Website: www.dctaxagent.co.uk
Disclaimer
This article provides general information only and does not constitute personalised tax advice. Each case must be reviewed based on the penalty received, the tax years involved, the actual obligations, the available documents and the correspondence issued by HMRC.