HMRC must normally assess an inaccuracy penalty within 12 months of the end of the appeal period for the decision that corrected the tax, or, where no assessment was needed, within 12 months of the date the error was corrected. Failure to notify penalties follow the same 12 month pattern, running from the end of the appeal period for the tax assessment or from the date the unpaid tax is ascertained.

Where do the penalty time limits come from?

The limits are in the penalty legislation itself rather than in the general assessing rules. For inaccuracies in returns and documents, and for failing to tell HMRC about an under assessment, the rule is paragraph 13 of Schedule 24 to the Finance Act 2007. For failure to notify chargeability, it is paragraph 16 of Schedule 41 to the Finance Act 2008. Both provisions require HMRC to assess the penalty, notify the person and state the period to which the penalty relates.

These limits are separate from the time limits for assessing the tax. HMRC first needs a valid tax assessment or correction, which for income tax and capital gains tax is normally possible up to 4 years after the end of the tax year (section 34 Taxes Management Act 1970), 6 years where the loss of tax was brought about carelessly, and 20 years where it was deliberate or due to a failure to notify under section 7 (section 36). Our guide to discovery assessments explains those rules. The penalty clock described below only starts once the tax position has been settled.

What is the time limit for an inaccuracy penalty?

Paragraph 13(3) of Schedule 24 says an inaccuracy penalty must be assessed before the end of the period of 12 months beginning with:

  • the end of the appeal period for the decision correcting the inaccuracy; or
  • if there is no assessment to the tax concerned, the date on which the inaccuracy is corrected.

Paragraph 13(4) applies the same structure to a penalty for failing to tell HMRC that one of its own assessments was too low, running from the end of the appeal period for the assessment that corrected the understatement, or the date the understatement was corrected.

What does the appeal period mean?

Paragraph 13(5) defines the appeal period as the period during which an appeal could be brought, or during which an appeal that has been brought has not been determined or withdrawn. In other words:

  • if the taxpayer does not appeal the closure notice, amendment or assessment, the clock starts when the time to appeal runs out, which for most direct tax decisions is 30 days (section 31A Taxes Management Act 1970);
  • if there is an appeal, the clock does not start until the appeal is settled or withdrawn.

HMRC’s guidance at CH83040 adds that where the appeal is heard by a court or tribunal, the 12 months starts on the date the decision is released, whether or not there is a further appeal to a higher court.

What if the taxpayer corrected the error themselves?

When someone puts the error right before HMRC discovers it, for example by amending a Self Assessment return, there may be no HMRC assessment at all. CH83040 tells officers that the penalty assessment must then be issued within 12 months of the date the correction was made. The same applies wherever no assessment is needed to put the inaccuracy right.

This is a real limit. An unprompted amendment followed by a long silence from HMRC can mean the window for a penalty has closed, although HMRC can still open an enquiry into the amended return within the usual enquiry window.

How long does HMRC have for a failure to notify penalty?

Paragraph 16(4) of Schedule 41 requires the penalty to be assessed before the end of 12 months beginning with the end of the appeal period for the assessment of the tax unpaid because of the failure, or, if there is no such assessment, the date on which the amount of unpaid tax is ascertained.

HMRC’s guidance at CH74200 contains an important practical instruction. Where someone who failed to notify then files a return, officers are told to make the penalty assessment within 12 months of receiving the return, using the tax shown in it, even if they open an enquiry. If the enquiry later shows the return was too low, a supplementary failure to notify penalty can follow, and the understatement itself is considered for an inaccuracy penalty. Our guide to failure to notify penalties covers how the amount is set.

Can HMRC increase a penalty after it has been assessed?

Yes, within limits. Paragraph 13(6) of Schedule 24 and paragraph 16(6) of Schedule 41 allow a supplementary assessment where the original penalty was based on an underestimate of potential lost revenue. CH83050 explains that the time limits for a supplementary penalty run from the date of the supplementary tax assessment that recovers the further tax.

A penalty assessment is treated procedurally like an assessment to tax and can be combined with one (paragraph 13(2)), and once issued it must be paid within 30 days of the notice (paragraph 13(1A)), unless it is under appeal.

How does this work in practice?

Illustration only. Sam’s 2023 to 2024 return is under enquiry. HMRC issues a closure notice on 10 March 2026 increasing the tax, and considers the error careless.

  • If Sam does not appeal, the 30 day appeal period ends in early April 2026, and HMRC must assess any inaccuracy penalty within 12 months beginning with that date, so by early April 2027.
  • If Sam appeals and the dispute goes to the tribunal, the 12 months does not start until the tribunal’s decision is released.
  • If instead Sam had amended the return himself on 1 September 2025 and HMRC accepted the figures without an assessment, the penalty would have to be assessed by the end of August 2026.

HMRC’s stated practice at CH83040 is to issue the penalty with or soon after the tax decision, so that any review or appeal on tax and penalty can be heard together, and to issue best estimate penalty assessments before a limit expires if necessary.

Do the same limits apply to late filing penalties and settlements?

No. Late filing penalties under Schedule 55 to the Finance Act 2009 have their own rule: HMRC can assess up to the later of 2 years from the filing date and 12 months from the end of the appeal period for the tax that should have been shown in the return (CH64200).

A contract settlement is treated as equivalent to raising a penalty assessment, so where tax and penalties are agreed in one settlement no separate penalty assessment is needed (CH83040).

What mistakes do people make about penalty time limits?

  • Confusing the 4, 6 and 20 year limits for tax with the 12 month penalty limits, which run from a later point.
  • Assuming the clock started on the closure notice date rather than at the end of the appeal period.
  • Forgetting that an open appeal on the tax keeps the penalty window open.
  • Not checking the date of a voluntary amendment when a penalty arrives long afterwards.
  • Missing the 30 day window to appeal the penalty itself; see late appeals to HMRC.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.