In our Spring Statement 2025 Report, we outlined how late payment penalties have increased for Value Added Tax (VAT) taxpayers and IT taxpayers as they join MTD from April 2025 onwards.
To update this document, on 01 April 2025, HMRC produced a Policy Paper outlining the provisions of The Finance Act 2021 (Amendment of Schedule 26 Penalty Figures) (Appointed Day: Regulation Making Power) Regulations 2025 which updates Schedule 26 of the Finance Act 2021. It is this schedule that provides for penalties for failure to pay tax between:
- 1 and 15 days:
- 16 and 30 days; and
- 31 days and over
The changes, now in legislation, can be expressed as follows:
|
Lateness Duration
|
Before April 2025
|
Post-April 2025
|
|
1 to 15 days
|
2%
|
3%
|
|
16 to 30 days
|
2%
|
3%
|
|
31 days +
|
4%
|
10%
|
For Bookkeepers
Note that this legislation and the increased penalty regime will also apply to volunteers testing MTD IT prior to commencing mandation in April 2026. HMRC has confirmed you won’t incur any filing penalties for late submission of quarterly updates during the testing period, but this exemption doesn’t apply to the final declaration due by 31 January.
The primary purpose of penalty legislation is to motivate timely payment while ensuring fairness for compliant taxpayers. Therefore, it is essential to highlight that while late payment penalties have increased, taxpayers who are part of an agreed Time to Pay repayment plan will not incur these penalties. Nonetheless, if the terms of the Time to Pay agreement are not followed, the agreement may be terminated, and HMRC may impose penalties as though the agreement had never existed.
To prevent penalties, it is essential to make timely payments or enter into a Time to Pay arrangement and adhere to its conditions.
