A paper outlining the changes to the late payment penalty regime for taxpayers has been published by HMRC. It is the governments’ intention to reform sanctions for late submission and late payments to make them ‘fairer and more consistent across taxes’. Initially, the changes will be applied 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, including income tax self-assessment (ITSA).
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 the tax remains unpaid after day 15 after the due date, the taxpayer incurs the first penalty.
For VAT taxpayers, the reforms take effect from periods starting on or after 1 April 2022. The changes will take effect for taxpayers in ITSA from accounting periods beginning on or after 6 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 ITSA).
For all other ITSA taxpayers, the reforms will take effect from accounting periods beginning on or after 6 April 2024.
Further guidance on this matter can be found here on the government website.