London is the UK's tax error hotspot – common mistakes and how to avoid a fine

More Londoners have come forward to HMRC to admit they have paid the wrong tax and to correct their records than in any other areas of the UK, new data shows.

A total of 3,296 individuals living in London admitted they had paid the wrong tax in the year to 31 March 2025, according to a Freedom of Information (FOI) request. This is more than the rest of the nine biggest UK cities combined.

The data is related to the number of disclosures made by those "who have not declared the right amount of income tax, capital gains tax, National Insurance contributions, or corporation tax”. They have then sought to make HMRC aware of the error.

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Simple mistakes can lead to paying the incorrect amount of tax. But the punishment for paying the wrong tax can still be heavy fines and in cases of deliberate evasion, which is a criminal offence, imprisonment.

Far fewer people made voluntary disclosures to HMRC in Manchester (241 people admitting they had underpaid tax), Birmingham (394) and Leeds (150) compared to London in the year to 31 March 2025.

The lower number of voluntary disclosures in other UK cities highlights the concentration of cases in the capital and its most affluent postcodes.

South West London dominates the table of the top 10 postcodes areas for the number of people approaching HMRC to confess the underpayment of tax, with the number of people coming forward to the HMRC reaching 492.

Graham Caddock, tax director at accountancy firm Lubbock Fine, which submitted the FOI, said anyone who has underpaid tax deliberately or accidently should come forward to the HMRC as soon as possible.

Caddock said: “HMRC’s sophisticated approach to detecting tax errors using systems such as their Connect database, is targeting tax evasion more effectively than ever before.”

Voluntary disclosures submitted to HMRC per postcode for the tax year 2024/2025

Source: HMRC via an FOI request

How to avoid a fine for paying the wrong tax

Disclosing mistakes to HMRC as early as possible is the best way to avoid or reduce hefty fines for paying the wrong amount of tax.

Caddock said: “Taxpayers who have purposely or accidentally avoided their tax obligations are starting to realise it is more likely than ever that they will be caught.

“For anyone who has accidentally or deliberately underpaid their taxes, it is more important than ever to disclose and admit tax errors early rather than wait for them to be discovered.”

Common tax mistakes

Some of the common reasons why people underreport their tax obligations include:

• Undeclared rental income, such as letting out a property or room through platforms like Airbnb
• Income from side businesses, cryptocurrency trading, or offshore accounts, which can be difficult to track and report accurately
• Other self-employed income streams including freelance work, social media influencing, and brand collaborations, which may also go unreported

Caddock said: “With income from side businesses, property or offshore investments becoming more common and visible to HMRC, the risk of discovery is highly likely.

“Voluntary disclosures to HMRC are the best way to correct these errors before they become bigger problems leading to hefty tax penalties. In many cases HMRC can go back up to 20 years to collect unpaid taxes.”

How much are HMRC tax penalties?

Deliberate income tax evasion can lead to six months in prison or a fine of up to £5,000. In serious cases, penalties may be seven years’ imprisonment or more and unlimited fines.

When it comes to self-assessment, you’ll get a penalty if you need to complete a tax return and you send your return late, or pay your tax bill late.

If you register for self-assessment late – after 5 October and do not pay all of your tax bill by 31 January – you may get a ‘failure to notify’ penalty. This penalty is based on the amount still left to pay and you’ll receive it within 12 months after HMRC receives your self-assessment tax return.

If you send your tax return late you’ll get the following late filing penalties:

• an initial £100 penalty
• after three months, additional daily penalties of £10 per day, up to a maximum of £900
• after six months, a further penalty of 5% of the tax due or £300, whichever is greater
• after 12 months, another 5% or £300 charge, whichever is greater

If you pay your tax late you’ll get penalties of 5% of the tax unpaid at:

• 30 days
• six months
• 12 months

You’ll also be charged interest on the amount owed.

MoneyWeek has approached HMRC for comment.