HMRC cancels record number of tax penalties – could yours be challenged?

HMRC cancelled a record 48,189 tax penalties during the 2025/26 tax year, with new figures suggesting that challenging a penalty can be worthwhile if you believe it's been issued incorrectly.

According to recent analysis, 65% of penalties challenged by taxpayers were cancelled. Most related to automatic fines for late filing or late payment, including the familiar £100 penalty for missing the Self Assessment deadline.

Why are so many penalties being overturned?

The number of cancelled penalties has been rising. The 48,189 cancelled in 2025/26 represents a 4% increase on the 46,266 overturned in 2024/25, and a reported 75% increase since 2020/21, when 5,499 penalties were cancelled during the pandemic.

Many of these penalties are generated automatically, meaning there isn't necessarily someone reviewing the individual circumstances before a fine is issued.

That doesn't mean every penalty is wrong, of course, but it does mean there can be circumstances that haven't been properly considered.

Separate figures covering HMRC's statutory reviews, which deal with more complex tax disputes, also show an increase in decisions being changed.

HMRC cancelled or amended 926 substantive decisions in 2025/26, up 35% from 688 the previous year. Meanwhile, the proportion of reviews that upheld HMRC's original decision fell from 73% to 67%.

When might a penalty be challenged?

One case highlighted by accountancy firm Price Bailey involved a taxpayer who received £1,600 in automated late filing penalties.

The taxpayer believed their return had been successfully submitted after HMRC's online system appeared to indicate that the filing was complete. Subsequent emails from HMRC were diverted into a junk folder, meaning the problem wasn't identified until the penalties had accumulated.

The case eventually reached a tax tribunal, which overturned the penalties, finding that easily missed automated communications did not amount to effective notice in those circumstances.

It's a useful reminder that an automatically generated penalty isn't necessarily the final word, particularly where there are questions about whether HMRC's systems or communications have contributed to the problem.

Does this mean HMRC is getting it wrong?

Not necessarily in every case, but the figures do highlight the importance of reviewing penalties rather than simply assuming they're correct.

Andrew Park, tax investigations partner at Price Bailey, pointed out that high-volume automated penalties lack human oversight when they're first issued.

He explained that HMRC's independent internal reviewers provide an important additional check, allowing individual circumstances to be considered before disputes potentially reach a tribunal.

Of course, the fact that 65% of challenged penalties were cancelled doesn't mean that 65% of all penalties issued by HMRC are incorrect. It tells us about the cases taxpayers chose to challenge, rather than every penalty HMRC issued.

What should you do if you receive a penalty?

The first thing is not to ignore it.

Check what the penalty relates to, whether the information HMRC has used is correct and whether there are circumstances that might justify an appeal.

There are time limits for challenging penalties, so it's important to act promptly rather than leaving the letter sitting on your desk.

Equally, it's worth remembering that a genuine missed deadline doesn't automatically mean a penalty will be cancelled. HMRC will consider the circumstances, and an appeal needs to have a reasonable basis.

For me, the interesting point from these figures is that HMRC's original decision isn't always the end of the matter. Automated systems are useful for handling large volumes of work, but they don't necessarily capture every individual circumstance.

If you've received an HMRC penalty and aren't sure whether it's correct, get in touch. We can look at the circumstances and help you understand whether there may be grounds to challenge it.