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Changes to late payment penalty regime for taxpayers

HMRC has clarified changes to the late payment penalty scheme which will start to come into force from April 2022.

There are two late payment penalties that may apply; a first penalty and than 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. In most instances this will amount to a 4% charge at day 30.


If tax remains unpaid in day 31, the taxpayer will begin to incur an additional penalty on the tax that remains outstanding. It accrues on a daily basis, at a rate of 4% per annum on the outstanding amount. This additional penalty will stop accruing when the taxpayer pays the tax that is due.


To avoid a penalty or penalties, the taxpayer will need to either pay or approach HMRC to agree a "time to pay" arrangement.

The reforms come into effect for VAT taxpayers from periods starting on or after 1 April 2022, and for taxpayers in income tax self assessment (ITSA), from accounting periods beginning on or after 6 April 2023 for taxpayers 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 taxpayers in self-assessment, the changes will apply from accounting periods beginning on or after 6 April 2024.

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