What Are the Changes?
Beginning 6 April 2025, new late payment penalty regimes apply for VAT and Income Tax Self Assessment (ITSA) taxpayers (especially landlords and self-employed individuals) using HMRC’s Making Tax Digital system. The new structure is:
- 3% if tax remains unpaid by 15 days after the deadline
- A further 3% if unpaid by 30 days
- 10% per annum for amounts unpaid after 31 days or more (gov.uk)
These escalated penalties reflect efforts to close the UK’s tax gap and discourage delayed payments. (moneyweek.com)
Who’s Affected?
- Landlords who use Self Assessment and fall under income/property reporting thresholds.
- Contractors / self-employed businesses required to report under new MTD rules.
- Anyone with VAT obligations under MTD for VAT.
Risks of Non-Compliance
- Financial penalties add up quickly, especially with the 10% annual rate portion.
- Risk of interest charges and possible enforcement action if issues persist.
- Being outside compliance might affect access to reliefs or credits.
Actionable Advice to Stay Compliant
- Pay on time: Even a small portion of the payment should be made to avoid penalties.
- Request payment plans early if you cannot pay full amount—HMRC often allows this.
- Keep accurate, up-to-date records digitally, especially income and expense tracking.
Example Scenarios
- Mark, with £5,000 VAT due, misses the 15-day deadline → penalty £150 (3%). If missed 30-days, another 3%; if after 31 days or more, 10% × duration.
- Lily, a landlord with late Self Assessment for her property income of £2,000, filed after 40 days → owes 6% (3% + 3%) and beginning 31 days onward, 10% per annum portion on that outstanding £2,000.
Best Practices for Compliance
- Use software or calendar tools to track filing and payment deadlines.
- Sign up for alerts/notifications from HMRC.
- Reconcile financial accounts monthly to avoid surprises.
- If uncertain whether a deadline applies (e.g., crossing thresholds), consult a tax advisor well ahead of April 2026.
Late penalties significantly increase cost of procrastination. With the digital era fully transforming tax obligations in the UK, proactivity and exact record-keeping are essential to avoid creating a compliance burden years down the line.