HMRC published a further consultation on interest and penalties, 'Making Tax Digital: Interest harmonisation and sanctions for late payment'.

What's new?

HMRC have responded to this consultation, published a policy paper, 'Interest harmonisation and sanctions for late payment', and draft legislation has been included in Finance Bill 2018-19.


This follows recent consultations on: 

The new consultation also aims to bring into line interest on Corporation Tax and VAT, in order to align it with the Finance Act 2009 Schedule 56 late payment rules.

As proposed, the new system will allow no late payment penalties if the taxpayer has a reasonable excuse for late payment.

The interest will be based on the UK Bank of England (BoE) Base Rate and is currently set as 2.5% above base for interest charged by HMRC and 1% below base (subject to 0.5% floor) for interest paid by HMRC.

Corporation Tax and interest

VAT and interest

These rules will be replaced.

Proposed new rules

Late payment penalties

In addition to interest, it has been decided following previous consultations that penalties should also be charged, particularly given the preferential interest rate of 2.5% above base when compared to commercial lenders.

The key proposals on late payment penalties, are as follows: 

Special circumstances

The consultation will close on 2 March 2018. The full consultation document can be found here. Legislation is expected in Finance Bill 2018-19.

Summary of questions

Question 1. Do you agree that in-year Quarterly Instalment Payments (QIPs) should continue to attract differential interest rates?

Question 2 – Do you agree the way interest is charged for Corporation Tax (CT) satisfactorily mirrors the rules contained in FA09?

Question 3 – If you do not agree please explain why.

Question 4 – Do the proposals for interest for VAT on late payment of a return reasonably reflect the FA09 rules?

Question 5 – Are the proposals for VAT regarding interest on assessments and amendments sensible?

Question 6 – Do the proposals for interest on a delayed payment of a repayment VAT return reflect the right balance between recompense for customers and the protection of public monies?

Question 7 – Do the proposals for late payment penalties strike the right balance between fairness for those that pay on time and provide a reasonable time for those that need it to arrange payment?

Question 8 – Do you think these general rules provide the correct balance between protecting those that pay on time and encouraging and supporting those that do not?

Question 9 – Do the proposed rules provide the correct balance between protecting those that pay on time and encouraging and supporting those that do not?

Question 10 – We believe that late payment penalties should apply from the payment due date. What difficulties, if any, could you see with this?

Question 11 – Are there any other specific circumstances that should be accounted for?