HM Revenue and Customs (HMRC) has cancelled more than 48,000 tax return penalties after identifying a lack of human oversight within its automated penalty system. During the 2025-26 tax year, a record 48,189 fines were successfully appealed by taxpayers.
Approximately 65 per cent of these appealed fines were rescinded. HMRC, operating under the Labour government’s tax authority, noted in its latest annual accounts that the online system made it “more likely” for customers to lodge appeals and enabled fines to be “quickly and efficiently” withdrawn.
Andrew Park, a tax expert from the accountancy firm Price Bailey, explained, “Because these are high-volume, automatically generated fines, they lack human oversight at the point of issuance. The high success rate of these appeals suggests that many more taxpayers could successfully challenge unfair penalties if they felt confident navigating the process.”
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Sean Drury of tax consultancy Blick Rothenberg added, “There’s an awful lot of these automatic penalty notices that go out which are actually incorrect. For example, someone leaves the UK, no longer needs to file a tax return, but HMRC’s system still thinks they should be filing in the future and therefore issues penalty notices.”
Mr Park also highlighted the benefits of introducing a points-based penalty system, stating, “Transitioning to a points-based system is a much fairer approach for everyday taxpayers. Crucially, it relieves HMRC of a massive administrative burden, allowing their teams to focus resources on genuine non-compliance rather than processing appeals for accidental, one-off mistakes.”
Taxpayers are generally required to provide a reasonable excuse when contesting penalties, such as those for late submissions or payments, or missed deadlines for accepting reviews or appeals. However, some reasons are not accepted, including failed payments due to insufficient funds, difficulties using the HMRC online system, lack of reminder notifications, or errors on the tax return itself.
An HMRC spokesperson stated, “Our aim is to help people 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.
Those who believe they’ve wrongly received a penalty for late filing can appeal. We can cancel penalties when a reasonable excuse is provided.”