HMRC Consults on Reforming Late Payment Penalties 

Picture of Written by: Liez Comendador
Written by: Liez Comendador
Late Payment Penalties

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HMRC is updating late payment penalty rules to prevent tax avoidance. Currently, HMRC can assess a second penalty when the full amount of outstanding tax is paid within a two-year limit. This allows taxpayers to avoid the second penalty by delaying payment until just before the end of the period. The proposed changes aim to address this loophole.  

late payment penalty HMRC

Draft regulations will allow HMRC to assess the second penalty before the tax is fully paid, within the two-year limit. This change removes the avoidance opportunity and ensures fairness. 

The penalty system includes an initial penalty of 2% of the outstanding amount if not paid within 15 days, plus an additional 2% if not paid within 30 days. A second penalty of 4% per annum is applied to the unpaid tax from day 31. 

The implementation timeline is as follows: For VAT, the changes began on 1 January 2023. For Income Tax Self-Assessment (ITSA) volunteers testing Making Tax Digital, the changes start from April 2024. For ITSA taxpayers with income over £50,000, the changes start from April 2026, and for those with income over £30,000, from April 2027. 

HMRC is seeking feedback on the draft regulations, with a deadline for responses by 10 June 2024. The objective is to ensure penalties are fair and prevent deliberate tax avoidance. 

Stay tuned to the latest UK tax news here at Legend Financial. For your tax, accountancy, or business needs, call us today! 

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  • Junaid Usman

    Apart from being a partner at Legend Financial, Junaid is an expert on Business Tax including business management advisory services which has proven in the growth of company. He is a promising advisor with an ideology; "Any business success depends on the level of objectivity it maintains."

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