New penalties for late payments

The new late payment penalties regime will start rolling out from April 2022 for VAT taxpayers, followed by income tax self-assessment (ITSA) taxpayers. The late payment penalties are a potential problem for businesses that struggle to pay within 30 days.

The regime will affect VAT return periods beginning on or after 1 April 2022. It will be extended to include self-employed workers and landlords with annual turnover exceeding £10,000 from 6 April 2024, and other ITSA taxpayers a year later. Late payments There is no penalty if payment is made within 15 days of the due date. If paid within 15 to 30 days, the penalty is 2% of the outstanding tax, with a further 2% penalty if tax is still unpaid after 30 days.

In addition, a daily penalty at the rate of 4% p.a. on the balance outstanding is charged from day 31. However, penalties are not charged if there is reasonable excuse. A business can avoid any further penalties accruing by entering into a time to pay arrangement with HMRC.

The revisions are very different compared to the current default surcharge system where the level of penalty is dependent on previous defaults. The new penalties will apply separately to each late payment, and should therefore be much fairer. Businesses have incurred a substantial default surcharge for being just a day or two late when submitting a VAT return, but this will not happen given the new 15-day grace period.