Compliance
Compliance Spotlight: Elevated Late Penalties and What They Mean for Landlords & Contractors
A crucial look at the increases to late payment penalties from April 2025, particularly for VAT and Self Assessment income taxpayers, with steps to avoid unnecessary costs.
By NomadicTax Research Team • 5-8 min read • November 23, 2025
## 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](https://www.gov.uk/government/publications/supporting-documents-for-spring-statement-2025/spring-statement-2025-policy-costings?utm_source=openai))
These escalated penalties reflect efforts to close the UK’s tax gap and discourage delayed payments. ([moneyweek.com](https://moneyweek.com/personal-finance/late-tax-penalties-changes-reeves?utm_source=openai))
## 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.