Harsher penalty regime for late payment of tax – did you miss it?

The budget, when announced, made no mention of changes to penalties for late payment of tax. However hidden in the detail was actually a harsher penalty regime, applicable from April 2023 for income tax and April 2022 for VAT.

The new regime will focus on the lateness of the payment and the amount of tax due. When introduced, taxpayers will have 15 days to settle their tax bill. They will then be subject to a penalty of 2% of the unpaid tax on day 16, 4% on day 31. Daily penalties will then apply.

For income tax, the date the penalties begin to apply is accelerated, as previously taxpayers had 30 days before the first penalty arose (which was 5% of the tax unpaid at that point). Formerly the penalties arose at set points: 30 days late, 6 months late and 12 months late. Daily penalties only applied to late filing of the return. Under the new regime, penalties will therefore accrue much more quickly.

For income tax, the date of introduction of the penalty changes is important as this aligns to the date when making tax digital will be effective. This is even more concerning as five returns will be required from taxpayers then rather than just one. This increases the risk of payments being innocently missed as people adjust and familiarise with the new system.

If you would like to discuss this further please contact Gemma Hedges for income tax penalty queries, Alan Rolfe for VAT queries.