Changes to late payment penalty for taxpayers

Late Payment Penalty Scheme

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


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 first penalty will occur on any tax that remains unpaid after 15 days. This penalty is set at 2% of the tax outstanding after day 15. Taxpayers will not incur a penalty if the outstanding tax is paid within the first 15 days.


After 30 days, the penalty will be calculated as 2% of the tax outstanding after day 15 plus 2% of the tax outstanding at day 30. This is most likely going to amount to a 4% charge at day 30.


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


HMRC has discretionary power to reduce or not to charge a penalty for late payment if it considers that appropriate in the circumstances. This will include where there are special circumstances that cause a taxpayer to pay their tax late.


HMRC has confirmed that it will take ‘a light-touch approach to the initial 2% late payment penalty for customers in the first year of operation of the new system under both VAT and ITSA. Where a taxpayer is doing their best to comply, HMRC will not assess the first penalty at 2% after 15 days, allowing taxpayers 30 days to approach HMRC in the first year before HMRC charges a penalty.


If the taxpayer has a reasonable excuse for late payment, no penalty will be due. The taxpayer will not incur a late payment penalty if they pay the tax promptly if their reasonable excuse has come to an end.


The reforms come into effect for VAT taxpayers from periods starting on or after 1 April 2022 and for taxpayers who are required to submit digital quarterly updates through MTD for ITSA from accounting periods beginning on or after 6 April 2023.


For all other taxpayers in self-assessment, the changes will apply from accounting periods beginning on or after 6 April 2024.



Blog Post uploaded 24 August 2021