CC/FS7b: penalty for not reporting an underassessment

CC/FS7b is the HMRC factsheet “Compliance checks: penalties for not telling HMRC about an underassessment”. It applies where HMRC has assessed your tax, usually because a return was not sent, the assessment was too low, and you did not tell HMRC within 30 days of the date of the assessment. The penalty can be up to 30% of the tax that was missed, and it can be reduced, to nil in some cases, depending on how and when you tell HMRC.

What is the CC/FS7b factsheet?

CC/FS7b is part of HMRC’s compliance check series, listed under penalties in the collection we explain in our guide to HMRC compliance check factsheets. On GOV.UK the official spelling of the title uses a hyphen in “under assessment”. It was first published on 31 August 2012 and was last updated on 25 February 2022, when HMRC revised the sections on asking someone else to deal with HMRC, your rights when penalties are being considered, and what to do if you are unhappy with its service. A Welsh language version is available.

The factsheet explains the penalty in paragraph 2 of Schedule 24 to the Finance Act 2007. It is a close relative of CC/FS7a, which deals with errors in returns and documents you send. CC/FS7b deals with something different: staying silent when HMRC’s own figure is too low.

What counts as an underassessment?

If you do not send a completed tax return, HMRC may issue an assessment of the tax it believes is due. If that figure is lower than the tax that should have been shown on your return, the factsheet calls it an underassessment because it is too low. HMRC’s Compliance Handbook says HMRC normally issues an estimate when a return has been issued and not sent back, or when a required return is not delivered.

The law treats a determination in the same way as an assessment, so a determination that understates your tax is covered too. The factsheet’s own example is a VAT assessment issued because a VAT return was not filed on time.

When does the penalty apply, and when does it not?

HMRC may charge a penalty if it sent an assessment that was too low and you did not tell HMRC it was too low within 30 days of the date of the assessment. The clock runs from the date on the assessment, not from when you opened the letter.

There is no penalty if you took reasonable steps to tell HMRC within the 30 days. The factsheet gives examples: sending the completed return, contacting HMRC, or consulting a tax adviser. It adds that what counts as reasonable steps depends on each person’s circumstances. The legislation requires HMRC to consider whether you knew, or should have known, about the underassessment and what steps would have been reasonable.

If you ask someone else, such as an employee or adviser, to act for you, you must do as much as you can to make sure they tell HMRC about an underassessment within 30 days.

How much can the penalty be?

The penalty is a percentage of the potential lost revenue, which the factsheet defines as the difference between the tax assessed and the correct amount of tax. Unlike CC/FS7a, there are no separate bands for careless or deliberate behaviour. The range depends only on whether your disclosure was prompted or unprompted. It is unprompted if you tell HMRC before you have reason to think it has found, or is about to find, the problem. Any other disclosure is prompted. Our page on prompted and unprompted disclosure explains how HMRC decides.

Key fact	What CC/FS7b says
Trigger	HMRC assessment too low and not reported within 30 days of its date
No penalty if	You took reasonable steps to tell HMRC within 30 days
Penalty based on	Difference between tax assessed and the correct tax
Unprompted disclosure	0% to 30%
Prompted disclosure	15% to 30%
Reductions for quality of disclosure	Telling up to 30%, helping up to 40%, giving access to records up to 30%
Long delay, such as 3 years or more	Reduction usually restricted to 10 percentage points above the minimum

Schedule 24 only allows HMRC to suspend a penalty for a careless inaccuracy under paragraph 1, so this penalty, which arises under paragraph 2, is not one that can be suspended.

How does HMRC calculate it?

The factsheet describes six stages:

1. Work out the potential lost revenue.
2. Decide whether the disclosure was prompted or unprompted, which sets the minimum of 0% or 15%. The maximum is 30%.
3. Work out the reduction for the quality of disclosure, which HMRC calls “telling, helping and giving”.
4. Find the penalty rate: take the gap between the maximum and minimum, apply the reduction to that gap, and subtract the result from the maximum.
5. Multiply the potential lost revenue by the rate.
6. Apply any other reductions that are needed.

To get the full reduction you need to tell HMRC everything as soon as you know, and do everything you can to help put it right. If you take a long time to disclose, HMRC will usually restrict the reduction to 10 percentage points above the minimum, so a prompted disclosure would attract at least 25%. The potential lost revenue itself is explained further in our guide to potential lost revenue.

Illustration only. Priya, a landlord, did not send her Self Assessment return. HMRC estimated her tax at £4,000. Her rental profits were higher, and the correct tax was £5,500, but she paid the £4,000 and said nothing. A year later HMRC opens a check and finds the gap, so her disclosure is prompted and the range is 15% to 30%. The potential lost revenue is £1,500. Priya explains everything, helps with the figures and provides her records, and HMRC allows an 80% reduction. The gap of 15 points times 80% is 12 points, so the rate is 30% minus 12, or 18%. The penalty is £1,500 times 18%, which is £270, on top of the £1,500 of extra tax.

What happens next?

HMRC will write to explain the penalty and how it was calculated, and you should tell the officer straightaway if you disagree or if there are special circumstances to consider. HMRC will then either send a penalty assessment notice or invite you to enter into a contract to pay the penalty along with the tax and interest. Interest may be charged if the penalty is not paid on time.

If HMRC makes a decision you can appeal, it will explain it. The factsheet says you will usually have three options, each within 30 days: send new information to the officer dealing with the check, ask for a review by an HMRC officer not involved in the matter, or ask an independent tribunal to hear the appeal. Alternative Dispute Resolution may also be available for certain disputes. GOV.UK says reviews usually take 45 days, and an appeal to the tribunal after a review is usually due within 30 days of the review result letter. See appealing an HMRC decision in 30 days.

What are my rights, and can someone deal with HMRC for me?

When HMRC is considering a penalty, the factsheet says you have the right not to answer questions asked to help decide whether to charge one, you decide how much help to give, you can get professional advice, you can appeal, you may apply for funded legal assistance for certain penalty appeals, and you are entitled to have the matter dealt with without unreasonable delay. These rights come from the European Convention on Human Rights and are explained in factsheet CC/FS9.

You can ask a professional adviser, friend or relative to deal with HMRC for you, although HMRC may still write to you or speak to you directly. Many people ask their accountant or tax adviser to handle the check and the penalty discussion. HMRC can check any return or payroll, and the accountant’s fees for dealing with a check can be insured through tax investigation insurance.

The factsheet also warns that HMRC may carry out a criminal investigation, and you may be prosecuted, if you knowingly give untrue information or dishonestly declare the wrong amount.

What mistakes do people make?

• Paying a low estimate and assuming the matter is closed. An estimate is not an agreement that the figure is right.
• Counting the 30 days from the wrong date. They run from the date of the assessment.
• Leaving it to an adviser without checking they contacted HMRC in time.
• Waiting for HMRC to find the gap, which turns an unprompted disclosure into a prompted one with a higher minimum.

Frequently asked questions

Does sending the overdue return count as telling HMRC?

The factsheet gives sending the completed return as an example of a reasonable step, so sending it within 30 days of the assessment date should mean no penalty under this rule.

Is the penalty the same as a late filing penalty?

No. CC/FS7b covers a penalty for not telling HMRC its assessment was too low. Late filing and late payment penalties are separate charges with their own rules.

Can the penalty be more than 30%?

Not under the ranges in CC/FS7b. The maximum shown for both prompted and unprompted disclosure is 30% of the potential lost revenue.

Do I also pay the extra tax?

Yes. The penalty is charged on top of the tax that was underassessed, and interest can also be due.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

Sources

• GOV.UK: Compliance checks penalties for not telling hmrc about an under assess
• GOV.UK: Hm revenue and customs compliance checks factsheets
• GOV.UK: Penalties for not telling us about an under assessment ccfs7b
• GOV.UK: manual page CH81090
• legislation.gov.uk: Act 2007 c. 11, schedule 24
• legislation.gov.uk: Act 2007 c. 11, schedule 24
• GOV.UK: Review of a tax or penalty decision

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 November 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.