If you pay VAT bills, you will be more than aware that late payments can result in penalties of up to 15% of the amount due. This has become very strict, with individuals receiving penalties for as little as a one day delay.

In light of the harsh measures in place, the Government has now decided that it is time to reform these late-payment penalties to take a slightly eased approach. This will come into action for periods starting on or after the 1st of April 2022.

What Is The New VAT Penalty System?

The new system will be as follows:

  • VAT paid within 15 days = 0 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

These penalties will be calculated as a percentage of the VAT debt outstanding and can be appealed. For example, if the taxpayer has a reasonable excuse for non-payment and can communicate this to HMRC, the penalty will not be levied.

There will, however, be no notices or default periods under this new system. Companies will be expected to plan ahead for any VAT due, and if they are unable to pay, they must contact HMRC in advance to arrange a time to pay (TTP) agreement. When a TTP agreement has been confirmed, the clock will stop at the penalty rate applicable at that point in time.