Compliance
Compliance Know-How: Late Payment Penalties under MTD and ITSA - What You Must Do
HMRC’s Spring Statement 2025 introduced new late-payment penalties for VAT and Income Tax Self-Assessment taxpayers—understanding the changes can help businesses and individuals avoid costly missteps.
By NomadicTax Research Team • 5-8 min read • November 21, 2025
## What Are the Latest Penalty Changes?
From **6 April 2025**, penalties for **late payment** under VAT and Income Tax Self Assessment (ITSA) tailored to those joining **Making Tax Digital (MTD)** have changed. ([gov.uk](https://www.gov.uk/government/publications/supporting-documents-for-spring-statement-2025/spring-statement-2025-policy-costings?utm_source=openai)) These penalties include:
- A **3% penalty** when tax is overdue by 15 days. ([gov.uk](https://www.gov.uk/government/publications/supporting-documents-for-spring-statement-2025/spring-statement-2025-policy-costings?utm_source=openai))
- A further **3% when it becomes overdue by 30 days** after that. ([gov.uk](https://www.gov.uk/government/publications/supporting-documents-for-spring-statement-2025/spring-statement-2025-policy-costings?utm_source=openai))
- Plus **10% per annum** on any amount overdue beyond 31 days. ([gov.uk](https://www.gov.uk/government/publications/supporting-documents-for-spring-statement-2025/spring-statement-2025-policy-costings?utm_source=openai))
## Who Is Affected
- Any VAT or ITSA taxpayer required to use MTD (including those newly joining) from 6 April 2025. ([gov.uk](https://www.gov.uk/government/publications/supporting-documents-for-spring-statement-2025/spring-statement-2025-policy-costings?utm_source=openai))
- Businesses and individuals with overdue liabilities in those categories.
## Examples
**Example 1 – Small Company with Overdue VAT**
- VAT due: £10,000.
- If 15 days late: penalty of **3%**, so £300.
- If 30 days late: another 3% added (£300).
- If still unpaid after 31 days: interest/annual penalty rate of **10% per annum** on the remaining overdue amount.
**Example 2 – Self-Assessment (ITSA) with Late Income Tax Payment**
- Self Assessment tax due on 31 January. Payments made after the deadlines:
1. 15 days late ⇒ 3% penalty.
2. 30 days late ⇒ Additional 3%.
3. Over 31 days ⇒ Accrues 10% per annum until cleared.
## Best Practices to Remain Compliant
- **Mark your calendars** for key payment dates: VAT returns, ITSA deadlines.
- If using accounting software or MTD-compatible tools, ensure that they can track overdue days accurately.
- If you foresee a delay, contact HMRC in advance—sometimes arrangements or extensions can lessen penalties.
- Keep digital records and filing consistent—MTD demands higher standards in record keeping.
## How to Mitigate Risk Before the Penalties Take Full Effect
- Confirm whether you are already falling under MTD-obligated filings. If not, check when you will be.
- Audit your payment and filing histories to identify any patterns you can fix.
- Explore whether HMRC offers schemes such as Time-to-Pay agreements in your situation.
- Budget for potential penalties as costs of compliance until your reporting and payments stabilize.
Understanding these compliance changes ahead of time can save significant sums. Better to pay early than incur avoidable penalties under MTD and ITSA.