Open any HMRC estimate as soon as it arrives and compare it with what you expect to owe. Count the 30 days from the date shown on the assessment, not the date you received it. The period begins with that date. If the estimate looks low, tell HMRC straight away by phone or in writing and keep a note of the call or a copy of the letter. If you use an agent, confirm in writing that they have actually contacted HMRC within the period. File the missing return as soon as you can. Under section 28C(3) a self assessment based on the return replaces the determination.

Penalty for not telling HMRC an assessment is too low

Q: Which assessments are caught?

Two common examples are: Self Assessment determinations. Under section 28C of the Taxes Management Act 1970, where a return is not delivered by the filing date an officer may determine the tax due "to the best of his information and belief". The determination has effect as if it were your self assessment until it is replaced by a self assessment made from a return. No determination, and no self assessment replacing one, can be made after 3 years beginning with the filing date or, for the replacing self assessment, 12 months beginning with the date of the determination if that is later. VAT assessments for missing returns. Section 73(1) of the VAT Act 1994 lets HMRC assess the VAT due to the best of its judgment where returns have not been made. See VAT best judgement assessments. Where the estimate is too high, it still stands as your liability until a return replaces it. The penalty only bites where the estimate is too low and you stay quiet.

Q: How might it work?

Illustration only. Priya has not filed her Self Assessment return. HMRC issues a determination of £3,000. She knows her real liability is about £5,000 because she had a large one off contract that year, but she pays the £3,000 and says nothing. A year later she files her return showing £5,000. The potential lost revenue is £2,000. If HMRC treats the disclosure as prompted, the penalty falls between £300 (15%) and £600 (30%) depending on the help she gives. Had she phoned HMRC within 30 days of the date of the determination to say it was too low, there would have been no penalty under paragraph 2, although late filing penalties would still apply (see Self Assessment late filing penalties).

If HMRC issues an assessment or determination that understates your tax, and you do not take reasonable steps to tell HMRC within 30 days beginning with the date of that assessment, you can be charged a penalty under paragraph 2 of Schedule 24 to the Finance Act 2007. The maximum is 30% of the tax that was understated, reducible to 15% or nil for disclosure. You avoid it entirely by telling HMRC within the 30 days that the figure is too low.

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When does this penalty apply?

Paragraph 2(1) of Schedule 24 says a penalty is payable where an assessment issued to you by HMRC understates your liability to a relevant tax, and you fail to take reasonable steps to notify HMRC, within the period of 30 days beginning with the date of the assessment, that it is an under assessment. Paragraph 2(4) confirms that “assessment” includes a determination.

In practice this almost always follows a missing return. HMRC’s Compliance Handbook at CH81090 says HMRC normally issues an estimated assessment or determination where a return has been issued and not sent back, or where a return is due and not delivered. A person who files on time self assesses and will not receive an estimated assessment, so this penalty does not arise for them. CH81170 adds that it can exceptionally apply where an inheritance tax account is not received in time and HMRC makes a determination.

This is a different penalty from the one for failing to tell HMRC you need to register for a tax; that is covered in HMRC failure to notify penalties.

Which assessments are caught?

Two common examples are:

Self Assessment determinations. Under section 28C of the Taxes Management Act 1970, where a return is not delivered by the filing date an officer may determine the tax due “to the best of his information and belief”. The determination has effect as if it were your self assessment until it is replaced by a self assessment made from a return. No determination, and no self assessment replacing one, can be made after 3 years beginning with the filing date or, for the replacing self assessment, 12 months beginning with the date of the determination if that is later.
VAT assessments for missing returns. Section 73(1) of the VAT Act 1994 lets HMRC assess the VAT due to the best of its judgment where returns have not been made. See VAT best judgement assessments.

Where the estimate is too high, it still stands as your liability until a return replaces it. The penalty only bites where the estimate is too low and you stay quiet.

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What counts as taking reasonable steps?

Paragraph 2(2) says that in deciding what steps were reasonable, HMRC must consider whether you knew, or should have known, about the under assessment, and what steps would have been reasonable to take to notify it.

CH81170 lists reasonable steps, including:

phoning HMRC to discuss it;
writing or emailing an HMRC office to say the assessment is too low;
asking an agent to inform HMRC and making sure HMRC is told within the 30 days;
sending in the completed return after the assessment has been issued.

Importantly, CH81170 says you only have to tell HMRC the assessment is too low. You do not necessarily have to send the outstanding return within the 30 days, although HMRC may take other action to obtain it.

Agents are covered by paragraph 18. A reference to you includes a person acting on your behalf, but you are not liable for your agent’s failure if you satisfy HMRC that you took reasonable care to avoid it. Our guide on relying on an adviser explains what that usually involves.

How much is the penalty?

Paragraph 4C sets the penalty at 30% of the potential lost revenue. Paragraph 5 defines potential lost revenue as the additional tax due or payable as a result of correcting the assessment.

The penalty is reduced for disclosure in the same way as a careless inaccuracy. Paragraph 9 says you disclose by telling HMRC, giving reasonable help in quantifying the under assessment, and allowing access to records. Paragraph 10 then requires HMRC to reduce the 30% to reflect the quality of disclosure, but not below 15% for a prompted disclosure or 0% for an unprompted one. HMRC’s table at CH82470 groups “careless” and “under assessment” together for this purpose.

Disclosure	Maximum	Minimum
Unprompted	30%	0%
Prompted	30%	15%

Two further rules can help. Paragraph 11 allows a special reduction where HMRC thinks it right because of special circumstances, though not merely because you cannot afford to pay (see special reduction of penalties). Paragraph 12(2) reduces the penalty by the amount of any other penalty, or surcharge for late payment, determined by reference to the same tax liability.

How might it work?

Illustration only. Priya has not filed her Self Assessment return. HMRC issues a determination of £3,000. She knows her real liability is about £5,000 because she had a large one off contract that year, but she pays the £3,000 and says nothing. A year later she files her return showing £5,000. The potential lost revenue is £2,000. If HMRC treats the disclosure as prompted, the penalty falls between £300 (15%) and £600 (30%) depending on the help she gives. Had she phoned HMRC within 30 days of the date of the determination to say it was too low, there would have been no penalty under paragraph 2, although late filing penalties would still apply (see Self Assessment late filing penalties).

Can the penalty be suspended or appealed?

It cannot be suspended. HMRC’s guidance at CH83142 says a penalty for a failure to take reasonable steps to notify an under assessment can never be suspended; only careless inaccuracy penalties can be.

It can be appealed. Paragraph 15 gives a right of appeal against the decision that a penalty is payable and against its amount. Typical grounds are that you did tell HMRC within the 30 days, that you did not know and could not reasonably have known the assessment was too low, or that the disclosure reduction is too small.

HMRC also has a deadline. Under paragraph 13(4), it must assess the penalty within 12 months beginning with the end of the appeal period for the assessment that corrected the understatement or, if there is none, the date the understatement was corrected. Once assessed, paragraph 13(1A) requires payment within 30 days beginning with the day the penalty notice is issued.

How do you avoid it?

Open any HMRC estimate as soon as it arrives and compare it with what you expect to owe.
Count the 30 days from the date shown on the assessment, not the date you received it. The period begins with that date.
If the estimate looks low, tell HMRC straight away by phone or in writing and keep a note of the call or a copy of the letter.
If you use an agent, confirm in writing that they have actually contacted HMRC within the period.
File the missing return as soon as you can. Under section 28C(3) a self assessment based on the return replaces the determination.

What mistakes do people make?

Treating a low estimate as a windfall. Paying it does not settle the true liability, and the shortfall still has to be paid once the true figure comes to light.
Assuming that because no return was filed there is no “inaccuracy”. This penalty does not need an inaccurate document; the failure to speak up is enough.
For VAT, deliberately withholding returns to benefit from low assessments. CH81090 notes HMRC may instead consider a civil evasion penalty under section 60 of the VAT Act 1994 where a return has been dishonestly withheld.

For how this penalty fits alongside the others, see the HMRC penalties table.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.