For the first time in 25 years, the penalty for failing to pay Corporation Tax (CT) is going to increase.
While many may focus on the financial aspect of a penalty increase, it is more important for SMEs to observe the stricter stance HMRC is taking on non-compliance.
As such, it is worth understanding why SMEs seem to be the ones targeted for making mistakes with tax filings.
What new tax penalties are coming into force in 2026?
From 1 April 2026, the penalty for missing a CT filing will increase to £200 from the current penalty of £100.
That figure will double again to £400 after three months if you continue not to complete your tax filing.
Repeat offenders will face the top penalty of £2000, which is incurred when three successive filings are late.
As CT filings are a regular part of doing business, there is no excuse for not keeping up with this obligation and it is sincerely hoped that most businesses will not have to pay the new penalties.
How will the new CT penalties affect SMEs?
Given that the penalties are likely to be only a minor annoyance to larger businesses, it may seem as though HMRC are focusing on how SMEs are approaching tax.
There is a logic to this, as many SMEs are not paying the correct amount of tax, resulting in them being some of the largest contributors to the tax gap.
In fact, SMEs failed to pay around 40 per cent of the corporation tax they owed in the 2023/2024 fiscal year, the largest tax gap according to HMRC data.
The figures are yet to be revealed for the 2024/2025 fiscal year, so it is unclear whether this trend persisted.
However, the fact that only £22 billion of tax was collected compared to the £36.7 billion that was owed in the previous year is a concern.
As such, the increasing penalties can be read as a clear sign that HMRC are no longer prepared to tolerate non-compliance.
None of this is to say that SMEs are acting with malice when the tax bill goes unpaid, as many of them may struggle to understand or keep pace with their tax obligations.
When SMEs are struggling with compliance, it is vital that professional financial help is sought to avoid the financial and reputational damages that come from incorrect tax filings.
Our team can work with a business to show what tax obligations are present and how they can be managed alongside other expenses.
