HMRC late payment penalties are changing!

HMRC has published a policy paper outlining the forthcoming changes to the penalties for late payment and interest harmonisation for taxpayers.

The government intends to reform sanctions for late submission and late payments to make them ‘fairer and more consistent across taxes’. Initially the changes will apply to VAT and Personal Tax.

The changes will see interest charges and repayment interest harmonised to bring VAT in line with other tax regimes, including Personal Tax.

Under the new regime, there are two late payment penalties that may apply: a first penalty and then an additional or second penalty, 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 any of the tax is still unpaid after day 30 the penalty will be calculated at 2% of the tax outstanding 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 which 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 Personal Tax from accounting periods beginning on or after 6th April 2023 for those with business or property income over £10,000 per year (that is, taxpayers who are required to submit digital quarterly updates through Making Tax Digital for Personal Tax).

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

We will of course remind clients of the looming changes nearer the time, although we will also continue to do all that we can to avoid you incurring penalties in the first place!

You can read more about the changes in the HMRC guidance here, or of course get in touch if you have any questions.

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