Penalties and interest: key measures included in Budget 2021.
Late submission penalties
A points-based late filing penalty regime will replace existing late filing penalties for VAT and Income Tax.
This measure was consulted on in 2018, see Penalties: Making Tax Digital.
- When a taxpayer misses a submission deadline, they will incur a point.
- Points accrue separately for VAT and Income Tax.
- A penalty of £200 is charged when the taxpayer reaches a points threshold.
- The points threshold is based on the taxpayer's submission frequency.
- Accrued points expire after 24 months where the taxpayer remains below the points threshold.
- When a points threshold is reached, all points will expire after the taxpayer has met their return obligations for a set period based on their submission frequency.
- Where a taxpayer continues to miss submission deadlines after reaching the points threshold (and a penalty has been charged) they will be liable for a further fixed penalty for each missed obligation.
Late payment penalties
An amended Late payment penalty regime will be aligned across the main taxes.
- A first late payment penalty will be payable 30 days after the payment due date based on a percentage of the balance outstanding.
- No penalty will be payable if the tax is paid within 15 days of the due date.
- Tax unpaid after day 15 will attract a 2% penalty.
- Where tax is unpaid by day 30, the penalty increases to 4%.
- From day 31, a second late payment penalty is charged ar 4% per annum, accruing on a daily basis based on amounts outstanding.
- Penalties will stop accruing where a Time To Pay agreement is reached.
Implementation
The new late payment and late submission penalty rules will apply as follows:
- VAT: accounting periods beginning on or after 1 April 2022.
- Income Tax (where business or property income is over £10,000): accounting periods beginning on or after 6 April 2023.
- All other Income Tax taxpayers: accounting periods beginning on or after 6 April 2024.
Interest harmonisation
New legislation will align the interest rules for VAT with those for Income Tax from April 2022.
- Where VAT is paid after the due date, late payment interest will be payable from the date that payment became due until the date it is received by HMRC.
- HMRC will pay repayment interest on overpaid tax and refunds due to be repaid.
Useful guides on this topic
Budget 2021: Subscriber guide
A detailed guide with links to more detail on all the key topics for SMEs and their owners.
Penalties: Late Filing
Late returns can be subject to a mix of fixed and tax geared penalties. What penalties apply for late filing? Which penalty will apply and when?
Penalties: Late Payment (Subscriber guide)
What penalties are charged when tax is paid late? A guide for Subscribers.
Grounds for Appeal: Reasonable excuse
What is considered to be a 'reasonable excuse' when a taxpayer makes an appeal against a tax compliance failure?
Budget 2021: At a glance
A summary key budget announcements together with items published without announcement.
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