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HMRC internal manual

Self Assessment: the legal framework

HM Revenue & Customs
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Payment of tax: automatic interest and late payment penalties: surcharges on unpaid Income Tax and Capital Gains Tax for 2009-10 and earlier


This page describes the financial penalties for failing to pay Income Tax and Capital Gains Tax on time for the tax year 2009-10 and any earlier tax year. The relevant legislation is Section 59C Taxes Management Act 1970.

SALF308A describes the penalties for failing to pay Income Tax and Capital Gains Tax on time for the tax year 2010-11 and any subsequent tax year. The legislation governing the new late payment penalties is in Schedule 56 Finance Act 2009.

The rules on this page apply to any late paid tax for 2009-10 or an earlier year irrespective of when the tax was charged.

A surcharge will arise on any tax paid late

Section 59C(1)

The self assessment system is based on voluntary compliance. So it is essential that those taxpayers who pay the right amount of tax at the right time feel confident that the system does not reward non-compliance in any way.

However, the interest charged on late payments is not a penalty. It is designed to cancel the immediate financial advantage for those who pay late over those who pay on time.

So, in addition to any interest that may arise on tax paid late there is also a scheme of surcharges to encourage prompt payment. A surcharge is payable in respect of any tax (including capital gains tax or student loan repayments) which:

  • is shown as due in any self assessment (whether calculated by the taxpayer or HMRC) but which is not covered by any payment on account or balancing payments made (Section 59B)
  • in the context of a formal enquiry is shown as due in an amended self assessment, or discovery assessment, but which is not postponed pending an appeal (Section 55 - see SALF400).

The surcharge is also payable on any Class 4 NICs unpaid as if it were income tax charged under Chapter 2 of Part 2 of the Income Tax (Trading and Other Income) Act 2005 (S16(1) Social Security Contributions and Benefits Act, 1992)

The initial surcharge is 5% of any tax unpaid after 28 days

Section 59C(2)

Where a balancing payment or payment on account is still unpaid more than 28 days from the due date for that year’s balancing payment a surcharge automatically arises. This initial surcharge is equal to 5% of the tax unpaid at that date.

There will always be some taxpayers who intend to pay on time but, for some genuine reason, fail to do so. The 28-day period before a surcharge arises ensures that these taxpayers do not incur such a charge.

There may also be some taxpayers who, having calculated their final liability for a tax year, realise that they will have insufficient funds to pay the balance due at the due date. The 28-day period gives these taxpayers time to contact HMRC to arrange a suitable scheme of payment.

There is an additional 5% surcharge on tax still unpaid after six months

Section 59C(3)

Any tax that remains unpaid more than six months from the due date for payment is subject to a further surcharge. This further surcharge is again equal to 5% of the unpaid tax.

The stepped surcharge is intended to provide an increasing incentive to pay tax that is late and to ensure that the tax due for one tax year is paid before the final tax due for the subsequent year.

Example: Surcharge on late payment of tax due

A taxpayer completes a self assessment for 2002-03 showing a total tax liability of £9,000. Payments on account are paid on time. The balancing payment due on 31 January 2004 is £5,500, but the taxpayer makes a payment of only £1,750. £3,750 is outstanding.

  • Interest will arise on the £3,750 from 31 January 2004 to the date of payment (Section 86(1) & (2)).
  • If the £3,750 is still outstanding at midnight on 28 February 2004 a surcharge of £187.50 is due (£3,750 @ 5%) (Section 59C(2)). If that surcharge is imposed on 1 March 2004 interest will run on the surcharge from 31 March 2004 until it is paid (Section 59C(6)).
  • If the £3,750 is still outstanding at 1 August 2004 a further surcharge of £187.50 is due (again £3,750 @ 5%) (Section 59C(3)). If that surcharge is imposed on 1 August 2004 interest will run on the surcharge from 31 August 2004 until paid (Section 59C(6)).

Surcharges on additional tax payable on an amended self assessment

Although the tax due in a self assessment may be increased following an amendment, whether made by HMRC or the taxpayer, the due date for interest purposes remains the original due date. So any interest payable or repayable will be calculated by reference to the normal due date for the year regardless of the date of amendment.

But the due date for the additional tax payable is 30 days after the amendment if that is later than the usual due date (Schedule 3ZA). Surcharge is payable on any of the additional tax that remains unpaid 28 days after that due date.

So, for example, where an estimate is entered in the self assessment, and the final figure becomes known some months later, no surcharge will be due providing the additional tax due is paid within 58 days of the amendment. Interest will run from the original due date.

No surcharge is due if a penalty is determined in respect of the same tax

Section 59C(4)

No surcharge is payable on any tax on which a penalty is sought under Sections 7, 93(5), 95 or 95A in respect of the same tax. In such cases HMRC normally seek a penalty of at least the amount of the surcharge.

Interest will be charged on unpaid surcharge

Section 59C(6)

A surcharge is due for payment within 30 days of the date on which it is imposed. Interest is charged on any surcharge paid late and will run from the end of the 30-day payment period until payment.

The surcharge is imposed by a formal notice served on the taxpayer

Section 59C(5)

An officer of the Board is required to serve a notice on the taxpayer informing him or her that a surcharge is being imposed. This notice states the day on which it was issued and the time period within which an appeal can be made against the surcharge.

A separate notice is required whenever a further surcharge is imposed.

Appeals against the imposition of a surcharge

Section 59C(7) to (10)

The taxpayer may appeal against a surcharge, but must do so within 30 days of the date on which the surcharge was imposed.

In general the normal review and appeals procedures apply (see ARTG2100), but the grounds of appeal are confined to showing that the taxpayer had ‘a reasonable excuse for not paying the tax’ on time.

If it appears to the tribunal that throughout the ‘period of default’ (that is the period from the due date to the day before that on which the tax was paid) the taxpayer had a reasonable excuse for not paying the tax then the surcharge will be set aside.

But if there was no reasonable excuse the imposition of the surcharge will be confirmed.

There is no formal definition of ‘reasonable excuse’, but an inability to pay the tax due shall not be regarded as a reasonable excuse.

Mitigation of surcharge

Section 59C(11)

The Board of HMRC have a discretionary power to mitigate or remit any surcharge.

So, for example, if there is reasonable excuse for non payment of tax during part of a period of default the Board could use their discretionary power to ensure that the level of surcharge reflects the delay in the period after the reasonable excuse came to an end.

Similarly in any case in which an agreement is reached allowing the taxpayer to pay by instalments, those instalments will include interest. But the Board can use the power of mitigation to exclude surcharge, providing the instalment agreement is kept and the Board can use the power of mitigation to reduce or cancel the surcharge on the grounds of hardship.