Interest harmonisation and reform of penalties for late submission and late payment

The measure

A new penalty regime for VAT and income tax self-assessment (ITSA) will be introduced.

The late submission regime will be points based, with a financial penalty when a certain threshold is reached. The late payment regime will involve penalties that are proportionate to the tax owed and how late the payment is with no penalty chargeable on tax paid up to 15 days after the due date, a 2% penalty chargeable on tax paid between 16 and 30 days after the due date, which increases to a 4% penalty chargeable on tax unpaid after 30 days, with a further 4% annualised penalty rate chargeable on outstanding tax due after 30 days.

Interest charges and repayment interest will be amended to align VAT with other tax regimes.

This measure has been the subject of consultation since 2015.


Who will be affected?

The measure will apply to VAT taxpayers and those subject to ITSA.


When will the measure come into effect?

The measures will come into effect:

  • For VAT taxpayers, from periods starting on or after 1 April 2022;
  • For taxpayers in ITSA with business or property income over £10,000 per year, from accounting periods beginning on or after 6 April 2023; and
  • For all other taxpayers in ITSA, from accounting periods beginning on or after 6 April 2024.


Our view

The new regime is expected to achieve simplicity and to motivate compliance. Although the changes have been well sign-posted, and subject to a long period of consultation, they are still significant, and advisors, businesses, and individuals will need to become familiar with the new rules.