HMRC is facing serious questions after a record number of taxpayers had fines overturned in the 2025-26 tax year. More than two-thirds of those who appealed against tax office penalties were refunded, according to HMRC's annual accounts. In all, 48,189 fines were successfully challenged.
That is a record high and up 4 per cent from the previous year. The number of successful appeals rose, even though the number of penalties issued fell.
Experts question automated fines system
Eamonn Prendergast from the advice firm Palantir Financial Planning told the Times: "When 65 per cent of appealed penalties are being overturned, it raises a serious question about whether HMRC is issuing too many."
"Automation is necessary when dealing with millions of taxpayers, but people's circumstances don't always fit neatly into a computer system." He added that taxpayers should lodge an appeal if they believe a fine was issued incorrectly or if they had a reasonable excuse for failing to pay their tax.
HMRC automatically imposes penalties when taxpayers miss deadlines for submitting returns or making payments. While this system enables the tax authority to handle millions of cases, experts have questioned whether automation can consistently account for individual circumstances.
Concerns over taxpayer circumstances
Shaun Moore from the wealth management firm Quilter told the newspaper: "The fact that such a large number of penalties are being overturned on appeal suggests that there is a significant cohort of taxpayers who either should not have been penalised in the first place or whose circumstances were not fully considered when the penalty was initially issued."
HMRC said: "Our aim is to help people to get their tax right and avoid fines altogether, and about 11.5 million customers filed their 2024-25 tax return on time. If you no longer need to file a tax return, including because your earnings are lower, check using our online tool and then tell us, to avoid a penalty."
New points-based system under MTD
Mr Moore said a new points-based system being introduced as part of HMRC's modernisation programme, Making Tax Digital (MTD), could prove more equitable as it acknowledges that otherwise compliant taxpayers occasionally miss deadlines. Under the revised system, taxpayers receive a penalty point rather than an instant £100 fine for a missed quarterly return.
MTD for Income Tax became mandatory from April 2026 for sole traders and landlords with qualifying income over £50,000. From April 2027, those earning a qualifying income more than £30,000 will be required to do MTD for Income Tax.
No penalty points will be issued for late quarterly updates during the 2026 to 2027 tax year. Penalties still apply for late tax returns and late payments. From 6 April 2027 onwards, points-based penalties will apply where taxpayers miss a quarterly deadline. Taxpayers receive one penalty point for each missed quarterly deadline. Once four points are accumulated, a £200 fixed penalty is charged.
Points expire after a period of compliance. Further details are available on GOV.UK.
