Reacting to: HMRC performance update: July 2026 (gov.uk (HMRC)) →
HMRC published its July performance figures this morning. The line it would like you to take away is that the phone queue is getting shorter: calls answered in nine minutes thirty-eight in July, down from eleven forty-six in June. Fine. The number I think actually changes what a business owner should do is four sections earlier, in the part about disputes, and nobody puts it in a press release.
In the first quarter of 2026/27, HMRC concluded 30,307 statutory reviews related to automated penalties. It upheld its own original decision, unchanged, in 26.9% of them. The other 73.1% — 22,168 reviews — were varied or cancelled. That is HMRC's own definition and HMRC's own count, not an interpretation: a review is recorded as concluded when it is upheld, varied or cancelled, and "upheld" means the original decision stood without any change at all.
My view, plainly: if you are sitting on an automated penalty notice and you have not asked for a review because you assumed it was a waste of time, you have almost certainly made the wrong call. The review is free, it does not go near a tribunal, and while it is running you do not have to pay the penalty.
Read the number honestly before you use it
Three-in-four is not the odds for everybody. People ask for a review when they think they have a case, so this is a self-selected group — the reviews HMRC concluded are the ones somebody already thought were worth arguing. Anyone selling you "73% of penalties get cancelled" as a general fact is misreading it.
What the figure does tell you is something narrower and more useful: when a human being at HMRC actually looks at an automated penalty, the machine turns out to have got it wrong or overstated it far more often than not. That is a statement about the quality of automated penalty issue, and it is a good reason to treat a penalty notice as an opening position rather than a settled bill.
The scale matters too. Those 30,307 automated-penalty reviews sit alongside just 1,736 statutory reviews of everything else — tax assessments, relief refusals, the judgement calls. Seventeen and a half automated-penalty reviews for every one of everything else. This is not a niche corner of the tax system. It is the ordinary experience of ordinary businesses filing late.
Everything else goes HMRC's way, and that is the other half of the advice
Set the automated penalties aside and the picture flips completely.
On those 1,736 other statutory reviews, HMRC upheld its decision in 69.7% of cases. Only 526 were varied or cancelled. And at the tribunal, HMRC recorded 461 court and tribunal decisions in the quarter: 408 outright wins, 41 part wins, 12 losses — a 91.1% success rate. The taxpayer won outright in twelve cases out of 461, which is 2.6%.
So the practical rule is not "fight HMRC". It is: take the free review on an automated penalty almost every time, and think very hard before you take a judgement call to a tribunal. Those are different decisions with wildly different economics, and the same report gives you the numbers for both.
Worked example: what an automated penalty stack is actually worth arguing over
Illustrative sole trader, real published rates. Say the 2024/25 return was due on 31 January 2026, £8,400 of tax was owed, and both the return and the payment ran twelve months late.
| Charge | How it is worked out | Amount |
|---|---|---|
| Late filing, initial | Fixed | £100 |
| Late filing, daily | £10 a day for 90 days, from 3 months | £900 |
| Late filing, 6 months | Greater of 5% of £8,400 or £300 | £420 |
| Late filing, 12 months | Greater of 5% of £8,400 or £300 | £420 |
| Late payment, 30 days | 5% of tax unpaid | £420 |
| Late payment, 6 months | 5% of tax unpaid | £420 |
| Late payment, 12 months | 5% of tax unpaid | £420 |
| Total penalties | £3,100 |
£3,100 of penalties on an £8,400 tax bill, before interest — the penalties add 36.9% on top of the tax. That is the sum sitting behind a lot of those 30,307 reviews, and it is why "it is only a hundred quid, leave it" is usually wrong. The £100 is never the end of it.
The half hour it takes to write a review request is the best-paid half hour in the year if it lands. And if it does not, you have lost the half hour and nothing else.
What counts as a reasonable excuse is broader than most people think
Two entries on HMRC's published list surprise people, and both do real work on a late return:
- "You were unaware of or misunderstood your legal obligation." Not knowing you had to file can be a reasonable excuse.
- "You relied on someone else to send your return, and they did not." If you handed it over and it never went, that counts.
The rest of the list is what you would expect: bereavement of a close relative shortly before the deadline, an unexpected hospital stay, serious illness, software failure while you were preparing the return, problems with HMRC's own online services, fire, flood or theft, unpredictable postal delays, and delays related to a disability or mental illness.
The refusal list is short and worth knowing so you do not waste the attempt: a payment that failed because the money was not there, finding the online system difficult, not getting a reminder from HMRC, and making a mistake on the return. In every case you must file or pay as soon as you are able — an excuse that has not been followed by action does not hold.
The rest of the service picture, in numbers you can plan around
The same report gives you four operational facts worth building into how you deal with HMRC:
- Webchat beats the phone, comfortably. July: webchat answered in 2 minutes 18, phone in 9 minutes 38. Satisfaction, July: webchat 76.1%, phone 59.9%, digital services 80.3%. Across the year to date, 46.0% of callers waited more than ten minutes, and of the 9.436 million calls received, 740,000 were never handled at all — abandoned, busy or met with a recorded message. That is roughly one call in thirteen that simply did not connect.
- A phone call is half an hour of your life. July's average wait of 9:38 plus average handling time of 16:28 is 26 minutes a call, before you count the digging out of references beforehand.
- Post is running to target on speed but not on completion. July: 86.9% of correspondence cleared within 15 working days, against an 80% target. But year to date only 91.1% cleared within 40 working days, against a 95% target. Roughly one item in eleven is still open after eight working weeks.
- VAT registrations have slowed. Cleared within 40 days: 96.9% in April, 91.9% in July. One registration in twelve now takes longer than 40 days.
That last one has a price attached. You must account for VAT from your effective date of registration even if the number has not arrived. Cross the £90,000 threshold, wait out a slow registration, and invoice £15,000 of standard-rated work in the gap without adding VAT — and if the customer will not accept a later VAT-only invoice, the £2,500 comes out of your own margin. Registering early rather than exactly on time is the cheap fix. We set this out in full in when you should register for VAT.
What is still uncertain, and when we will know
The quarterly dispute figures only run to Q1. The July update carries reviews and litigation for April to June only; the July-to-September quarter lands in a later edition of the same monthly series. HMRC also labels all of this data provisional, with final figures for the year published alongside the Annual Report and Accounts in summer 2027.
The 40-working-day post figure lags a month. July's is not published yet, so the eight-week completion picture above is April to June. It arrives in next month's update.
What sits inside "automated penalties" is not broken down. HMRC publishes the total and the upheld rate, not a split by tax or penalty type. So the 73.1% is solid; a claim about which specific penalties drive it would not be.
Debt keeps climbing. The collectable debt balance stood at £42.765bn at the end of Q1, with 874,180 taxpayers already inside a Time to Pay arrangement. Against a compliance yield target of £50.9bn for the year and £8.309bn banked in Q1, the pressure to collect is not going to ease before the Budget on 28 October.
Four things to do this week
- Find any penalty notice dated in the last 30 days and appeal it. The deadline is normally 30 days from the date on the letter. Start at GOV.UK: disagree with a tax decision or penalty. Say what you disagree with and why, give your UTR or VAT number, and ask for a statutory review.
- Do not pay a penalty you are appealing. HMRC will not ask you to pay a penalty until the appeal is settled. For disputed tax, ask separately and in writing to delay payment, within 30 days of starting the process.
- Stop phoning first. Try webchat or your business tax account before the helpline. On July's figures that is a 2:18 wait instead of 9:38, with a materially better chance of getting the answer.
- If you are within £10,000 of the VAT threshold, start the registration now. One in twelve is taking over 40 days, and the VAT is due from your effective date whether or not the number has come through.
Penalty notices are the part of tax that people quietly absorb because arguing feels futile. HMRC's own numbers say it is not. If you would rather not write the letter yourself, dealing with HMRC on your behalf is part of what our tax service does, and it sits inside the accountancy packages most of our small business clients are on. Or tell us what has landed and we will come back to you the same working day.
Sources: HMRC, "HMRC performance update: July 2026", published 8 September 2026, and its definitions annexe; penalty rates from GOV.UK Self Assessment penalties; review, appeal, payment-delay and reasonable-excuse rules from GOV.UK: disagree with a tax decision or penalty. VAT registration threshold £90,000. Figures correct at 8 September 2026.