Penalties for late payment and interest: are you up to date?

26 Aug 2021

HMRC recently published a paper outlining the changes to the late payment penalty regime 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 income tax self assessment (ITSA). Here we take a look at the changes in greater detail.

The new late payment penalties

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 this tax is still unpaid after day 30, the penalty will be calculated as 2% of the tax outstanding after day 15 plus 2% of the tax outstanding at day 30.

A taxpayer will begin to incur an additional second penalty on outstanding tax if tax remains unpaid on day 31. The additional penalty will accrue on a daily basis at a rate of 4% per annum on the outstanding amount.

Considering Time to Pay arrangements

HMRC has revealed that it intends to offer taxpayers a Time to Pay arrangement, which enables a taxpayer to stop a penalty accruing any further by agreeing with HMRC a schedule for paying outstanding tax.

A Time to Pay arrangement has the same effect of paying the tax and prevents penalties from accruing from the day the taxpayer approaches HMRC to put the arrangement into place. The taxpayer must, however, continue to honour the terms of the arrangement.

Outlining the reviews and appeals process

In the paper, HMRC states that a taxpayer will have the right to appeal against each late payment penalty that is assessed. Taxpayers will be able to challenge an assessment via an internal HMRC review and by appealing to the courts.

Additionally, HMRC has stated that it holds discretionary power to reduce or not to charge a penalty for late payment if it considers that appropriate in the circumstances.

Practice Track Online always endeavours to keep up to date on the latest happenings in the world of tax and will be staying updated on the changes to the penalties for late payment and late submission.

View more posts from our archive