Schedule 55 Late Filing Penalties: The Notice-to-File Defence, A Practitioner Analysis

Schedule 55 to the Finance Act 2009 is the regime every self-assessment and corporation tax adviser meets constantly, and challenges least. Most Schedule 55 penalties are correctly charged and go unappealed. But a structural weakness sits underneath the whole regime: every penalty depends on HMRC having validly required the return in the first place, and a fresh 2025–26 line of First-tier Tribunal decisions shows that assumption fails far more often than practitioners check for.

Introduction & the Penalty Structure

Schedule 55 to the Finance Act 2009 came into force for self-assessment returns from the 2010–11 tax year and governs the penalty for late submission of self-assessment income tax returns, partnership returns, and, via Schedule 18 FA 1998 with parallel drafting, company tax returns. It is structurally distinct from Schedule 24 (inaccuracy penalties), and Schedule 56 (late payment penalties): Schedule 55 penalises the act of filing late, irrespective of whether the return, once filed, turns out to be accurate.

The regime is popular with HMRC because it is largely automated. Penalty notices for the initial £100 fixed penalty and the daily penalties are generated systemically once a return is recorded as outstanding past the relevant deadline. That automation is precisely the source of the vulnerability practitioners should be alert to: an automated system charges a penalty because its records show a return was due and not filed on time, without independently verifying, for every case, that a valid notice requiring that return was actually served on the taxpayer in the first place.

The Escalation Ladder

The £100 initial penalty applies even where no tax is ultimately due, a point that surprises many taxpayers and is not, by itself, capable of challenge on grounds of proportionality. The daily penalty stage is the one most frequently disputed, both because of its distinct notice requirement (below), and because HMRC must positively decide to charge it; it is not automatic in the way the initial £100 penalty is.

The Notice-to-File Requirement, Section 8 TMA 1970

A Schedule 55 penalty can only arise where the taxpayer failed to deliver a return “by the filing date.” The filing date, and the underlying obligation to file at all, is defined by reference to a notice given under section 8 TMA 1970 (for individuals), or the equivalent Schedule 18 FA 1998 notice (for companies). No valid notice, no filing obligation. No filing obligation, no filing date to be late against. No filing date, no Schedule 55 penalty capable of arising, however long the return in fact took to reach HMRC.

This is not a technicality practitioners can safely assume away. HMRC's systems do not universally retain, or reliably produce on request, evidence that a section 8 notice was actually issued and delivered for every year in a multi-year penalty dispute, particularly for older years, for taxpayers who moved address, or for taxpayers who came onto HMRC's radar through a compliance campaign rather than the standard annual notice-to-file cycle.

Donaldson v HMRC: What It Did and Did Not Decide

In Donaldson v HMRC [2016] EWCA Civ 761, the Court of Appeal considered a challenge to the validity of daily penalty notices on the basis that the notice did not, in terms, specify the date from which the daily penalties would run, and that HMRC's decision to charge daily penalties was a generic policy decision rather than a case-by-case determination for this specific taxpayer. The Court of Appeal rejected both grounds. It held that a generic, pre-set HMRC policy to charge daily penalties for all taxpayers meeting the criteria was sufficient to satisfy the statutory requirement that HMRC “decide” a penalty is payable, and that a notice given prospectively, before the three-month point was reached, informing the taxpayer that daily penalties would accrue if the return remained outstanding, was a good and valid notice. The Court additionally confirmed that even a defective notice may be saved by section 114 TMA 1970, provided it achieves its statutory purpose and does not mislead the taxpayer as to what is required.

Donaldson is frequently cited by HMRC, correctly, as authority that generic, templated daily-penalty notices are valid. But it is equally frequently over-read by advisers as closing down notice-based challenges to Schedule 55 penalties altogether. It does not. Donaldson assumed, as its starting point, that a valid section 8 notice to file existed and the taxpayer was validly under a filing obligation; the dispute was only about the adequacy of the subsequent daily-penalty notice. It is entirely silent on, and provides no answer to, the separate and logically prior question of whether a notice to file was ever validly given at all. That question is where the more recent line of cases, culminating in Wals, has proved far more fruitful for taxpayers.

Wals v HMRC: The Voluntary-Return Breakthrough

Wals v Revenue and Customs [2025] UKFTT 1331 (TC), revised in a 2026 decision reported as [2026] UKFTT 621 (TC), concerned a taxpayer who filed self-assessment returns for the 2010–11 to 2014–15 tax years between 108 and 638 days after what HMRC treated as the normal filing dates, resulting in Schedule 55 penalties totalling £4,500. The taxpayer's case, ultimately accepted by the tribunal, was that no section 8 notice to file had in fact been served on him for the years in question; the returns he filed were therefore voluntary returns, not returns made in response to a statutory notice.

The FTT found, on the evidence, that no notices to file had been served for any of the years in dispute. Because the returns were voluntary, there was no statutory filing date against which lateness could be measured. The tribunal held that the filing date, for a voluntary return, is properly treated as the date the return was actually delivered, meaning the returns could not, as a matter of law, have been filed “late” at all. The Schedule 55 penalties were cancelled and the appeal allowed in full.

Section 12D TMA 1970 and Its Limits

Parliament had already anticipated this line of argument. Section 12D TMA 1970, inserted by Finance Act 2019, provides that where a person delivers a return otherwise than pursuant to a notice under section 8 (i.e. a voluntary return), that return is treated as if it had been made pursuant to a notice given on the date the return was received. Section 12D was given both prospective and retrospective effect, subject to specified exclusions, precisely in order to put voluntary returns on the same statutory footing as notified returns going forward and to close down the type of argument that ultimately succeeded in Wals.

The practical effect is that section 12D forecloses the voluntary-return argument for returns and years falling within its scope. It does not, however, apply universally: the exclusions built into the transitional and retrospective provisions mean that some historic years, and some categories of case, remain outside section 12D's reach. Wals itself concerned years where the point remained live. Every notice-to-file challenge must therefore begin with a careful check of whether section 12D applies to the specific year and circumstances in question before concluding the Wals line of argument is available, it will not assist in every case, and assuming otherwise risks running a doomed appeal.

Reasonable Excuse Under Schedule 55

Where a valid notice to file did exist and the return was genuinely late, the taxpayer's remaining defence is reasonable excuse, applying the same Perrin v HMRC [2018] STC 1302 four-stage framework used across the penalty code: what were the facts said to constitute the excuse; did those facts actually exist; did they constitute an objectively reasonable excuse for the specific failure, judged against a person in the same position with the same attributes; and, if the excuse ceased, did the taxpayer remedy the failure without unreasonable delay once it did. Reliance on an agent to file is capable of being a reasonable excuse, but only where the taxpayer took reasonable care in engaging and instructing that agent and had no reason to believe the return had not been filed.

Special Reduction (Paragraph 16)

Paragraph 16 of Schedule 55 gives HMRC (and the FTT on appeal) a discretion to reduce a penalty because of special circumstances, mirroring the equivalent provision in Schedule 24. As with Schedule 24, the tribunals interpret this narrowly and it should be treated as a residual, secondary argument, not a substitute for a properly evidenced notice challenge or reasonable excuse case.

Interaction with Schedule 24 and the Incoming MTD Points-Based Regime

A late return that also contains an inaccuracy can attract both a Schedule 55 late-filing penalty and a separate Schedule 24 inaccuracy penalty; the two regimes address different failures and there is no automatic offset between them. Practitioners advising clients on the transition into Making Tax Digital should note that the new points-based late-submission penalty regime, phasing in for income tax from 2026–2028, operates on an entirely different mechanism, penalty points accumulating to a threshold before a fixed financial penalty is charged, rather than Schedule 55's escalating percentage/daily structure. The notice-to-file principles discussed in this analysis are specific to the Schedule 55 regime and do not transpose directly to the points-based system, though the underlying discipline of verifying that a valid obligation existed before conceding a penalty remains equally relevant.

Practitioner Checklist, 8 Points to Review in Every Schedule 55 Case

1. Was a valid section 8 TMA notice (or Sch 18 FA 1998 equivalent) actually served for every year in dispute? Request HMRC's evidence of issue and delivery before conceding any penalty. Do not assume it exists simply because HMRC's systems show a return as “due”.
2. Could the return have been a voluntary return? Check how the taxpayer first came onto HMRC's self-assessment records for the year in question, standard notice cycle, compliance campaign, third-party information, or self-registration.
3. Does section 12D TMA 1970 apply to the year in question? Confirm whether the retrospective and prospective provisions, and their exclusions, bring the specific year within its scope before relying on the Wals argument.
4. Was the daily penalty notice given prospectively and did HMRC evidence a decision to charge it? Test against Donaldson, a generic, templated decision is sufficient, but the notice must still have been given and must specify what it needs to.
5. Is there a reasonable excuse for the period of default, applying the Perrin four-stage test?
6. Could special circumstances under para 16 apply? Treat as a residual argument only.
7. Does a linked Schedule 24 inaccuracy penalty also apply? Confirm the two are being assessed on their correct, separate bases.
8. Has the appeal deadline been observed? Notices of appeal against Schedule 55 penalties are generally due within 30 days of the penalty notice.

Frequently Asked Questions