Policy paper

Increasing VAT and other taxes late payment penalties percentage rate relating to penalty reform

This tax information and impact note is about increasing late payment penalties for VAT and those in Income Tax Self Assessment (ITSA) who are part of the trial or voluntary cohort for Making Tax Digital (MTD).

• From: HM Revenue & Customs
• Published: 1 April 2025

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Increase to VAT and other taxes late payment penalties percentage rate relating to penalty reform

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This measure is about increasing late payment penalties imposed by schedule 26 to the Finance Act 2021 on unpaid tax liabilities for VAT and Making Tax Digital for Income Tax Self Assessment taxpayers. It includes increases in penalties from:

• 2 percentage points to 3 percentage points at 15 days
• 2 percentage points to 3 percentage points at 30 days
• 4 percentage points to 10 percentage points per annum from day 31

These changes will take effect from 1 April 2025 for taxpayers who the new penalty regime in schedule 26 already applies to. This includes VAT taxpayers and volunteers testing the Making Tax Digital system. The changes will also apply in the future to any tax regime that enters schedule 26.

Published 1 April 2025