HMRC outlines changes to late payment penalty regime

The government intends to reform sanctions for late submission and late payments. This is to make them ‘fairer and more consistent across taxes’. Initially, the changes will apply to VAT and Income Tax Self-Assessment (ITSA).

The changes will see interest charges and repayment interest harmonised to bring VAT in line with other tax regimes. This includes the ITSA.

Under the new regime, there are two late payment penalties that may apply: a first penalty and then an additional or second penalty. In addition, this is with an annualised penalty rate. All taxpayers, regardless of the tax regime, have a legal obligation to pay their tax by the due date for that tax. The taxpayer will not incur a penalty if the outstanding tax is paid within the first 15 days after the due date. If tax remains unpaid after day 15, the taxpayer incurs the first penalty.

This penalty is set at 2% of the tax outstanding after day 15.

If unpaid after day 30, the penalty will be calculated at 2% of the tax outstanding. This is after day 15, plus 2% of the tax outstanding after day 30. If tax remains unpaid on day 31, the taxpayer will begin to incur an additional penalty on the tax remaining outstanding. This will accrue at 4% per annum.

HMRC will offer taxpayers the option of requesting a Time to Pay arrangement. This arrangement will enable a taxpayer to stop a penalty from accruing by approaching HMRC and agreeing a schedule for paying their outstanding tax.

For VAT taxpayers, the reforms take effect from VAT periods starting on or after 1st April 2022. The changes will take effect for taxpayers in ITSA from accounting periods beginning on or after 6th April 2023. This is for those with business or property income over £10,000 per year. However, that is, taxpayers who are required to submit digital quarterly updates through Making Tax Digital for ITSA.

For all other ITSA taxpayers, the reforms will take effect from accounting periods beginning on or after 6th April 2024.

Amy Telford ACA of Harvey, Telford & Bates comments:

“The new penalty regime has been outlined by the government with conditions that businesses and taxpayers may require assistance in navigating. At Harvey, Telford & Bates, we are on hand to help you. If you need guidance on the late payment penalty regime, please get in touch with us and we will guide you through this.”

Speak to our expert team by calling 01743 462604 or, alternatively, email us at [email protected] .

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