I still remember the first time a client walked into my kitchen-table office clutching an HMRC penalty notice. Their face said panic; their voice said embarrassment. I’ve seen this reaction enough times to know two things: penalties themselves are usually not the end of the world, and how you respond in the immediate days after receiving a notice determines whether it becomes an uncomfortable bump or a long‑term cashflow problem.
Understand what the notice actually says
Before you do anything else, read the notice slowly. HMRC penalty letters aren’t written to comfort you — they’re written to be legally precise — so extract the facts:
Keeping a screenshot or scanned copy of the notice is useful. If the letter is ambiguous, call HMRC’s helpline and quote the reference to get a clear summary of what’s owed.
Check whether the penalty is correct
It’s perfectly reasonable to question a penalty. Common mistakes I find when I help clients check notices include:
If you have evidence — submission timestamps, bank statements, or correspondence — gather it. You can either phone HMRC or submit a formal appeal within the time window stated on the notice. Appeals are often successful when there’s a clear administrative error.
Appeal or ask for a review if you have a reasonable excuse
HMRC can remove penalties where taxpayers have a reasonable excuse. This is not the same as “I couldn’t be bothered” — typical reasonable excuses include serious illness, a bereavement, or a systems failure that wasn’t your fault. If you think you have one, put the case in writing and include supporting evidence where possible.
Note: successful appeals don’t erase interest or late payments automatically; they remove the penalty element. Always ask HMRC to confirm the full balance after any appeal.
Time to Pay: the formal route to manageable repayments
If the penalty is correct and you can’t pay in one go, HMRC’s Time to Pay (TTP) arrangement is the primary formal tool. I’ve negotiated dozens of TTPs and the key points I tell clients are:
HMRC is more likely to accept an arrangement you can stick to. It’s better to set a slightly lower payment you’ll reliably meet than a larger one you’ll default on — defaulting will often trigger further penalties.
Practical steps to build a repayment proposal
When you phone HMRC, have these items to hand:
If you’re unsure how to prepare a realistic budget, tools like FreeAgent, QuickBooks, or even a simple spreadsheet will do. If bookkeeping is not your strong suit, bring in an accountant or bookkeeper — they can package the figures more credibly and often secure a better TTP term.
Prioritise liabilities
You may be juggling VAT, PAYE, corporation tax and penalties simultaneously. The order in which you prioritise repayments affects penalties and business continuity:
Every business is different; weigh up short‑term survival (keeping staff and suppliers paid) against long‑term obligations. When in doubt, get professional advice — I find clients often underestimate the knock‑on effect of letting PAYE or VAT slide.
Use the right payment methods
HMRC accepts several payment methods: bank transfer, Direct Debit, debit card or at your bank. Setting up a Direct Debit for a TTP provides certainty and helps avoid missed payments. If your bank balance is volatile, discuss staggered payments with HMRC — for example weekly rather than monthly — if that better matches cash inflows.
What to do if HMRC refuses a reasonable Time to Pay
On rare occasions HMRC might decline a proposed plan. Options then include:
Keep communication open and records tidy
One simple pattern I always coach clients on: respond quickly to HMRC letters and keep a written record of every conversation (name, date, reference number and what was agreed). If you later need to prove what was discussed, this log is invaluable.
Prevent future notices
Finally, view the experience as a learning opportunity. Common preventive steps I recommend are:
Turning an HMRC penalty into a manageable repayment plan is rarely effortless, but with good documentation, realistic proposals and prompt communication, you can control the outcome. If you’d like, I can walk you through preparing a repayment proposal or review a notice with you — it’s usually easier than you think to get back on track.
