Currently if you pay your VAT bill late you may receive a penalty of up to 15% of the late paid amount, even for a one-day delay. The Government agrees that this is harsh, so it is reforming the late-payment penalties for VAT periods starting on or after 1 April 2022.
The key aspects of the new system are:
· VAT paid within 15 days: zero penalty;
· VAT unpaid after day 15: 2% penalty;
· VAT unpaid after day 30: 2% additional penalty;
· VAT unpaid at day 31: daily penalties at 4% per annum.
Penalties are calculated as a percentage of the VAT debt outstanding and can be appealed. Where the taxpayer has a reasonable excuse for non-payment and communicates that to HMRC, the penalty will not be levied.
However there will be no warning notices and no default periods under the new system. Businesses will be expected to plan for the VAT falling due and if they cannot pay to contact HMRC in good time to arrange a time to pay (TTP) agreement. When a TTP agreement is reached the clock stops at the rate of penalty in force at that point.
In addition to the late-payment penalty the taxpayer will be charged interest on any tax paid late at the rate of 2.5% plus the Bank of England base rate in line with other taxes.