A small mistake on your tax return may not seem serious at first. You might have entered the wrong number, missed some income from property, misunderstood an allowable expense, or used incorrect information. However, new proposed rules could make failing to fix a known mistake much more serious for taxpayers.
The latest alert from HM Revenue and Customs (HMRC) focuses on draught legislation that changes how errors in tax returns and documents are handled. If you know about an error but don’t correct it or inform HMRC, they could consider it deliberate. This is important because deliberate mistakes can lead to higher penalties and allow HMRC to investigate tax issues for a longer time.
Not every typo will lead to a 100% tax penalty from HMRC, and they cannot charge every taxpayer 100% for an innocent mistake. The proposals are still in draught form, and the maximum penalties would apply only to the extra tax lost due to an error, not to your entire income or tax bill.
Still, self-employed workers, landlords, company directors, and anyone who files a tax return should pay attention to these proposed changes. Here’s what the plans could mean, why tax experts are concerned, and what to do if you find an error.
Important: This article explains proposals published in July 2026. It does not mean these measures are currently in effect. Individual situations will depend on the facts, the type of tax, and the laws that apply.
The Headline Sounds Alarming but What Is Actually Proposed?
The phrase “small mistakes could cost you 100%” raises valid worry. The main issue isn’t just that someone made a mistake, but that the problem grows if they know about the mistake and don’t fix it.
On July 13, 2026, HMRC released its policy paper and draught legislation on correcting errors. This would require taxpayers to fix inaccuracies as soon as they know about them. HMRC would also gain the power to issue a formal Customer Correction Notice.
Taxpayers must take action while they or HMRC are within the legal time limits. This could mean changing a return directly or notifying HMRC when they can no longer amend it.
The controversial part of the HMRC proposals is what happens if a taxpayer knows about a mistake but doesn’t try to fix it. The draught says the mistake could be seen as deliberate for penalties and deadlines.
Thus, the new rules focus more on what taxpayers do after finding a mistake, rather than the initial mistake itself. A careless error corrected quickly will be viewed differently than one left uncorrected once the taxpayer is aware of it.
Are the HMRC Penalty Changes 2026 Already Law?
No. The HMRC penalty changes for 2026 mentioned in recent reports are just proposals in draught legislation. They are not currently enforced penalties for every tax return.
HMRC’s policy paper states that these changes will begin on a specific date in the future, which hasn’t been set yet. The consultation on the draught Finance Bill 2026–27 will end on September 7, 2026.
It’s important to understand this because headlines might suggest that these changes will happen right away. Taxpayers should stay aware, but they shouldn’t assume that a current tax mistake will automatically fall under rules that aren’t in effect yet.
The draught may change before it becomes law. Feedback from the consultation could lead to updates, new protections, or clearer definitions. Tax and legal experts have already raised questions about how the proposals would determine when a person realises an error and if the classification for deliberate errors is fair.
Still, these proposals show HMRC’s intent. They want taxpayers to fix mistakes quickly and plan to use penalties to encourage this. Therefore, keeping accurate records and responding promptly to HMRC communications is smart, regardless of the current or proposed rules.
Could HMRC Really Charge a 100% Penalty?
The maximum penalty is real, but it needs explanation. HMRC doesn’t base penalties on your salary, property value, business income, or total tax owed. Instead, penalties relate to potential lost revenue.
Potential lost revenue is the extra tax that needs to be paid when inaccurate information is corrected. HMRC states that a penalty for a lack of reasonable care can be between 0% and 30% of the extra tax owed. If the error was deliberate but not hidden, penalties can range from 20% to 70%. If the error was both deliberate and hidden, penalties can range from 30% to 100%.
Here’s a simple example:
- If a tax return underreports tax by £4,000,
- HMRC finds the mistake,
- The potential lost revenue is about £4,000.
- A 30% penalty would be £1,200.
- A 70% penalty would be £2,800.
- A 100% penalty would be £4,000.
The taxpayer would also owe the original £4,000, plus interest and any penalties. So, a 100% penalty could double the total cost before considering interest and professional fees.
Not every mistake will receive the maximum penalty. The penalty depends on how the mistake happened, whether it was reported or not, cooperation level, and other specific factors.
Therefore, searching for a “100% penalty for small tax mistakes” shouldn’t lead to the conclusion that a simple typo will result in the highest charge. A better warning is that not fixing known errors can lead to much bigger issues.
Careless, Deliberate or Concealed: Why Behaviour Matters
HMRC’s current penalty system classifies different types of taxpayer behaviour. Understanding these categories helps explain why the proposed changes are getting so much attention.
An error is seen as careless when someone does not take reasonable care. What is “reasonable” depends on the taxpayer’s situation, skills, and the complexity of their finances. A sole trader with simple records is not expected to use the same systems as a large international company, but both must make efforts to provide accurate information.
A deliberate tax mistake usually means the taxpayer knowingly provided incorrect information. A deliberate and concealed error is worse because the taxpayer tries to hide the mistake. These categories have different penalties because they show different levels of blame.
The proposed new duty introduces an important risk. If a taxpayer makes a mistake and then learns about it but does not correct it or inform HMRC in time, it might be considered deliberate, even if the original mistake was innocent.
This raises the question: can HMRC label a genuine mistake as deliberate? Under the proposals, an initial mistake may be innocent, but failing to act upon discovering it could lead to it being treated as deliberate for legal reasons.
That’s why taxpayers should keep records of what they knew, when they found out, what advice they received, and what actions they took. When they became aware of the issue may be just as important as the original mistake.
What Is an HMRC Customer Correction Notice?
An HMRC Customer Correction Notice is a formal request for a taxpayer to review and respond to a possible issue with their tax return.
The notice may ask the recipient to correct an error, disclose information, or confirm that everything is correct. Receiving a notice doesn’t mean the tax return is wrong; the taxpayer can explain why their original claim is correct.
This notice aims to improve compliance communication, similar to a “nudge letter.” HMRC might have information indicating that a figure or claim needs checking and will use the notice to get a clear response.
A notice could relate to:
- Property income that doesn’t match HMRC’s records
- Claims for relief or expenses that need review
- Undeclared freelance or trading income
- VAT discrepancies
- Mismatches between third-party data and a tax return
- Transactions that may create a tax liability
The first notice within six years offers some protection. According to HMRC, penalties for inaccuracies will apply only to deliberate mistakes if the taxpayer takes reasonable steps to correct it after the first notice.
Taxpayers shouldn’t ignore the notice. Even if they believe there’s no error, they should review their return, gather evidence, and respond by the deadline set in the notice.
What Happens If You Do Not Correct an HMRC Error?
What happens if I don’t fix an HMRC error depends on what you knew and when. It also depends on any deadlines and how HMRC views your actions.
If you find an error, you need to fix it or inform HMRC. If you don’t, they may see it as deliberate, leading to penalties and longer assessment periods.
Possible consequences include:
- You must pay the unpaid or underpaid tax
- Interest on late payments
- A penalty for inaccuracies
- A review of your records
- Longer assessment periods for deliberate actions
- Extra costs for professional help
- More challenges if records are incomplete
Doing nothing can be risky, even if you disagree with HMRC. Responding doesn’t mean you have to agree; you can explain your accuracy, provide documents, ask for clarification, or outline your reasoning.
If you’re under review, getting help from an HMRC Investigation Service in London can assist with organizing records, understanding HMRC’s questions, and crafting a clear response. The adviser should focus on the facts, without just accepting either side’s view.
The proposed changes make communication vital. Ignoring any messages or notices could lead to bigger problems than the original issue.
Why Could HMRC Look Back as Far as 20 Years?
A big worry is potential historic scrutiny. Normally, the HMRC has a four-year time limit for assessments. This can extend to six years for careless mistakes and 20 years for deliberate actions. Special rules might also apply for offshore issues and specific failures.
This is the basis for the HMRC’s 20-year investigation rule mentioned in the news. If an inaccuracy is seen as deliberate under new rules, the 20-year limit might apply.
However, HMRC won’t automatically check every taxpayer for 20 years. They still must follow legal rules before reopening any case. The time limit varies based on the type of tax, the time period, the situation, and the legal grounds for the assessment.
The difference between six and 20 years is significant. Many people and small businesses might not keep all necessary documents for 20 years unless required by law or business. Older transactions can be hard to track because advisers change, bank accounts close, software updates, and memories fade.
This is why the HMRC’s deliberate error penalty matters more than just the percentage. Being classified as deliberate can affect how long HMRC has to assess tax, how they investigate, and what evidence is needed to defend against claims.
Taxpayers should keep important records about errors, complex transactions, disputed tax issues, and communication with HMRC.
Self-Employed Workers Could Face Greater Pressure
The HMRC tax rules for self-employed workers are important because sole traders have to handle taxes while running their businesses. Unlike employees who have taxes taken from their paychecks, self-employed people must calculate their income, expenses, and other figures on their own.
Common mistakes in self-assessment include mixing personal and business spending, claiming expenses without proof, missing side project income, using the wrong accounting period, or not understanding when to report income.
Filing a self-employed tax return can get complicated if a person has multiple income sources, uses online platforms, receives payments in different accounts, or starts trading partway through the tax year. Even honest mistakes can come to light later due to new emails or invoices that show errors.
When this happens, HMRC error correction rules may apply. The taxpayer should take reasonable steps to fix the issue instead of waiting for HMRC to check it.
Working with a Self Assessment Accountant in London can help reduce mistakes and ensure unique transactions are handled before filing. An accountant can also review a submitted return when new information arises.
Taxpayers still have responsibilities. They must provide complete information and raise any concerns quickly. However, good advice can help identify problems, calculate the right tax, and explain corrections clearly.
Landlords and Property Investors Should Review Their Records
The HMRC tax rules for self-employed workers are important because sole traders have to handle taxes while running their businesses. Unlike employees who have taxes taken from their paychecks, self-employed people must calculate their income, expenses, and other figures on their own.
Common mistakes in self-assessment include mixing personal and business spending, claiming expenses without proof, missing side project income, using the wrong accounting period, or not understanding when to report income.
Filing a self-employed tax return can get complicated if a person has multiple income sources, uses online platforms, receives payments in different accounts, or starts trading partway through the tax year. Even honest mistakes can come to light later due to new emails or invoices that show errors.
When this happens, HMRC error correction rules may apply. The taxpayer should take reasonable steps to fix the issue instead of waiting for HMRC to check it.
Working with a Self Assessment Accountant in London can help reduce mistakes and ensure unique transactions are handled before filing. An accountant can also review a submitted return when new information arises.
Taxpayers still have responsibilities. They must provide complete information and raise any concerns quickly. However, good advice can help identify problems, calculate the right tax, and explain corrections clearly.
Insurance Brokers and Other Regulated Businesses Are Not Exempt
The proposals may impact many taxpayers who file documents with HMRC. HMRC’s policy paper talks about all taxpayers and tax advisers, not just landlords or sole traders.
Insurance brokers and other regulated businesses often have complicated income sources, like commissions and fees. Even with good financial controls, mistakes can happen.
For instance, a broker might find that income was recorded in the wrong period or that an expense was misclassified. In such cases, the company may need to change its Corporation Tax return or inform HMRC.
Hiring Specialist Accountants for Insurance and Brokers in the UK can help businesses create controls that fit their needs. Regular checks and documented reviews provide proof that the company is careful.
Tax compliance in the UK is not just about filing forms on time. It also requires keeping records, checking for errors, and adjusting previous submissions if new information shows they were incorrect.
Practical Examples: When a Small Error Could Escalate
It’s easier to grasp the new HMRC penalties for tax return mistakes with real examples. The following cases are straightforward and not meant to predict HMRC’s decisions in actual situations.
A taxpayer submits a Self Assessment return but forgets to include £2,500 earned from freelance work. Months later, they find the invoice while applying for a mortgage.
The initial mistake may not have been intentional. However, once the taxpayer realises the missing income, they should check if they can amend the return. Ignoring the error could be seen as deliberate.
A landlord incorrectly claims the full cost of a property extension as a repair. Their accountant later informs them that this expense is capital and shouldn’t be deducted from rental income.
The landlord should heed this advice. They need to calculate the impact, review the amendment period, and take corrective steps.
HMRC sends a Customer Correction Notice because it thinks the taxpayer omitted interest income. The taxpayer believes the account belongs to someone else.
In this case, the taxpayer should not change their return just to match HMRC. They should gather evidence, explain the mistake, and clarify why no correction is needed.
A VAT-registered business finds out that a software setting wrongly excluded some sales from previous VAT returns.
Management should identify when the error started, measure its impact, and follow the right correction or disclosure process. Continuing to submit flawed returns raises compliance risks.
These examples show that the answer to whether HMRC can fine you for a tax mistake is not straightforward. It depends on the type of error, the behaviour behind it, and the actions taken after it’s discovered.
How to Correct a Mistake on a Tax Return
If you want to correct a mistake on your tax return, first identify which return is wrong, what the correct amount should be, and if you can still make changes.
For online Self Assessment returns, you can usually fix mistakes through your online account within the deadline. Different rules apply for paper returns, Corporation Tax, VAT, PAYE, and other taxes. If you can’t directly amend your return, you may need to write to HMRC or use another method.
Here’s a simple process for correcting your tax return:
- Confirm the error: Don’t change your return unless you’re sure. Double-check invoices, statements, contracts, and calculations.
- Identify affected periods: A repeated mistake might impact more than one return.
- Calculate the tax difference: Figure out how much extra tax you owe or if you’re due a repayment.
- Check the amendment deadline: See if you can still change the return directly.
- Choose the right method to disclose: This depends on the type of tax and your situation.
- Explain clearly: Avoid vague language. Clearly state what the problem is, how you found it, and what you’ve corrected.
- Keep evidence: Save calculations, correspondence, amended records, and proof of submission.
- Arrange payment if needed: Paying tax promptly can reduce extra interest, but you still need to correct the mistake.
If the amounts are large, involve multiple years, or if HMRC is already checking, consider getting advice from Expert Chartered Certified Accountants in Enfield or Chartered Certified Accountants in Canary Wharf.
Acting quickly can also help reduce penalties. HMRC says penalties may be lowered if you disclose errors, assist in calculating the extra tax, and provide access to records.
What Should You Do After Receiving an HMRC Notice?
Always pay attention to HMRC warnings or letters. Even if you think they are wrong, note the response date and start looking into it right away.
Make sure the letter is real. Scammers often copy HMRC styles and use threats to rush you. Log into your HMRC account directly instead of clicking on links, and contact HMRC through official channels if you’re unsure.
Once Confirmed as Genuine:
- Read the whole document, not just the title.
- Note the date you received it and the response deadline.
- Identify the tax year and issue.
- Gather your tax return, accounts, and any supporting evidence.
- Compare HMRC’s details with your records.
- Ask for clarification if something is unclear.
- Respond in writing if needed.
- Keep copies of all documents you send.
- Seek professional advice if you’re unsure.
Don’t change a correct return just because HMRC asks you to check it. Also, don’t defend an incorrect number without reviewing the evidence.
A well-structured response shows that you took the notice seriously and acted sensibly. This could be important if HMRC needs to decide if you followed their correction rules.
Why Tax Professionals Have Raised Concerns
HMRC says their new proposals aim to make tax rules clearer and help them focus on bigger issues. They suggest using correction notices to help taxpayers fix simple problems.
However, some critics worry that the draught could impose harsh penalties for not fixing mistakes. Freshfields points out that labelling a mistake as deliberate can be unfair, especially if the error was unintentional and it’s unclear when a taxpayer should have noticed it.
Understanding when a taxpayer is “aware” of an issue can be tricky. Tax law often requires interpretation, not just basic math. HMRC and taxpayers may disagree on what expenses can be deducted, when income is earned, or how to classify transactions.
Additionally, many taxpayers do not have ongoing support. Someone might receive a technical letter and not fully grasp HMRC’s concerns. Others might move, miss a digital message, or think an old accountant is handling the issue.
These challenges don’t eliminate a taxpayer’s responsibility to fix known errors. However, they highlight the need for clear notices, reasonable deadlines, and easy ways to appeal if the proposed HMRC tax penalties become law.
Seven Ways to Reduce Your Risk Now
You don’t have to wait for new laws to improve your tax habits. Keeping accurate records and making quick corrections can help lower the risk of HMRC tax fines now.
1. Keep Your Contact Details Updated
Make sure HMRC has your current address and online details. If you miss a notice because it went to an old address, it can cause problems.
2. Check Your Return Before Submission
Before submitting, compare your final return with bank statements, invoices, payslips, and other documents. Don’t assume the software sorted everything correctly.
3. Reconcile Income Regularly
Freelancers, landlords, and businesses should check their accounts throughout the year instead of waiting until the deadline.
4. Review New Information
If you get a late statement or corrected report, think about whether it affects a return you’ve already filed.
5. Record Professional Advice
If you’re unsure about a tax issue, keep copies of advice and supporting evidence. This shows you took reasonable care.
6. Correct Confirmed Errors Promptly
Don’t wait for HMRC to find a known issue. Reporting it early can lead to a better penalty outcome than waiting until HMRC starts an enquiry.
7. Seek Help Before Deadlines Expire
Get professional advice while there’s still time to investigate and respond. Waiting until the last minute can limit your options.
These steps won’t guarantee that HMRC won’t ask questions, but they show that you take your tax responsibilities seriously and follow good practises.
Frequently Asked Questions About the HMRC Tax Fine Alert
Can HMRC fine you for a tax return mistake?
Yes, HMRC can fine you if your tax return has mistakes due to carelessness, intentional actions, or covering up errors. However, not all innocent mistakes lead to a penalty. The details, how you behaved, and how well you disclosed information matter.
How much can HMRC fine you for an error?
HMRC can fine you between 0% and 30% of the extra tax for carelessness, 20% to 70% for deliberate mistakes, and 30% to 100% for intentional and hidden errors. The exact penalty depends on your situation.
Does the 100% penalty apply to my whole tax bill?
No, the maximum penalty usually relates to the extra tax owed due to the mistake, not your total income or entire tax bill.
Are the proposed HMRC correction rules already active?
No, these rules were shared as draught legislation in July 2026. HMRC says they will start on a future date.
Can HMRC treat an innocent mistake as deliberate?
Yes, if you notice a mistake but do not take reasonable steps to fix it or inform HMRC, they may consider it deliberate for penalties, but that doesn’t mean the mistake was intentional.
What is an HMRC Customer Correction Notice?
It is a notice telling you to check a possible mistake and respond by correcting it or explaining why no correction is needed.
What happens if I disagree with HMRC?
You should reply before the deadline. Explain your side, provide proof, and consider getting professional help if you are unsure about any rules. Ignoring the notice is not an option.
Could HMRC investigate 20 years of records?
HMRC can review records for 20 years in some cases of deliberate actions. Whether this applies depends on the type of tax and other factors.
Who is most likely to be affected?
The draught rules mainly affect taxpayers who send returns to HMRC and their advisers. Self-employed workers, landlords, businesses, and people with complex income may face more correction issues.
Should I correct an old error immediately?
Yes, look into it quickly but follow the correct process. Confirm the facts, affected periods, tax details, and how to disclose information before making any changes.
Correct First, Argue Properly, Never Ignore
The HMRC tax fine alert doesn’t mean every small mistake will cost you 100%. It warns that ignoring an error can lead to bigger problems if new laws pass.
A simple mistake can mean extra tax, interest, and possibly a penalty. But if they see your mistake as intentional, the penalties can be higher, and you might face longer review times. So, it’s important to fix any errors on your tax return.
Taxpayers shouldn’t panic or admit to mistakes too quickly. An HMRC notice may just have questions, not accusations. The best response is to check the facts, gather evidence, and fix the error or explain why no change is needed.
For people and businesses in London, Clarkwell & Co. Chartered Certified Accountants can help with Self Assessment, landlord accounts, complex business tax issues, and HMRC enquiries. Getting advice early helps you understand the problem, meet deadlines, and communicate clearly with HMRC.
The best rule is simple: when you find a real tax error, check it out quickly, keep records of what you do, and follow the right steps to correct it.
