The changes will come into effect on:
The press release is available here.
On 1 August 2024, the Bank of England reduced the rate from 5.25% to 5%. HMRC interest rates are linked to the Bank of England base rate, and consequently, it has published updated its interest rate tables which recognises the .25% decrease. This interest applies to late VAT payments and repayments.
These changes will come into effect on:
HMRC has announced that interest rates for late payments will be revised following the Bank of England interest rate rise to 4.25%.
HMRC interest rates are linked to the Bank of England base rate.
As a consequence of the change in the base rate, HMRC interest rates for late payment and repayment will increase.
These changes will come into effect on:
Please also refer to Rates and allowances: HMRC interest rates for late and early payments.
As a consequence of the change in the Bank Of England base rate from 3% to 3.5%, HMRC’s interest rates for late payment and repayment will also increase.
These changes will come into effect on:
The HMRC publication Information on the interest rates for payments will be updated shortly.
HMRC interest rates are set in legislation and are linked to the Bank of England base rate. Late payment interest is set at base rate plus 2.5%. Repayment interest is set at base rate minus 1%, with a lower limit, or “minimum floor” of 0.5%.
HMRC has introduced new penalty and interest rules for late returns and payments from 1 January 2023. Details here.
On 4 January 2023 HMRC published guidance on how to remove these points to avoid a penalty. This is particularly important if a business has reached the penalty point threshold.
The penalty thresholds are:
If a business is at the limit and has the maximum points allowed for its accounting periods, it can remove them by meeting two conditions which are:
The guidance sets out how these tests are calculated and applied.
Further to my article on the introduction of changes to penalties for late filing and payments of VAT and follow up guidance, the forthcoming introduction on 1 January 2023 has focussed attention on how they will impact certain businesses.
Late returns
Many businesses who have had to deal with the “old” default surcharge regime realised that it could be disproportionate and create unfair outcomes. The new penalties are, in my view, fairer, and, the changes bring some welcome features and some which are less so.
The good news is that the introduction of the new rules mean that businesses will start with a clean slate, regardless of their position under the default surcharge mechanism – there is no carry over form one set of rules to another.
However, for the first time, late rendering of returns can incur penalties and interest if the returns are either:
In the previous regime when “non-payment” returns were filed late, this did not trigger a default.
Nil returns
Businesses which did not carry out any activity in the prescribed period, eg; intending traders, businesses temporary closed, or at the end of their life will have to recognise that a late nil return will now trigger points.
Repayment returns
Again, businesses which typically submit repayment returns, such as; new build constructors, exporters, and any business supplying zero rated goods or services will have to recognise tardy submissions will now affect them.
We understand that HMRC is aware of the impact on this sector and is planning to communicate with these businesses to make them aware of the new changes.
An additional point; from 1 March 2021 the Domestic Reverse Charge was introduced for the construction industry. As a result, an increased number of builders found themselves in a repayment position and will now need to ensure timely returns to avoid penalties.
Late payments – penalties and interest
The new late payment penalties regime will replace the default surcharge, which served as a combined late submission and late payment sanction.
Under the new rules, there will be two separate late payment penalties.
The first penalty has two separate elements:
The second penalty is triggered from day 31. This is charged daily and is based on an annual rate of 4% of any outstanding amount.
If all outstanding VAT is paid within 15 days of the due date, no late-payment penalty will arise. Although here will however still be late payment interest.
Interest
From 1 January 2023, HMRC will charge late-payment interest from the day a VAT payment is overdue to the day the VAT is paid, calculated at the Bank of England base rate plus 2.5%.
Time-to-Pay arrangements
HMRC offers the option of requesting a Time To Pay arrangement. This will enable a business to stop a penalty from accruing any further by approaching HMRC and agreeing a schedule for paying their outstanding tax.
Period of familiarisation
HMRC say that to give businesses time to get used to the changes, it will not be charging a first late payment penalty for the first year from 1 January 2023 until 31 December 2023, if the tax is paid in full within 30 days of the payment due date.
Appeals
It is anticipated that the number of appeals against late filing/payments will be reduced because of the more proportional approach of the new rules. However, it is still possible to appeal if a taxpayer considers the imposition of penalties and interest is unfair. An appellant needs a reasonable excuse to succeed.
Action
Advisers should ensure that clients affected by the new rules, specifically repayment business and those submitting nil returns, are aware of the impact. I know that a lot of these are habitual late filers and some “save up” returns for when they need a cash injection.
It will also be prudent for advisers to monitor penalty points accrued. We understand that HMRC is looking at how this information could be made available to agents and taxpayers. We expect more details about this in the coming months, including how software can be used to display points.
Repayment supplement
The new system may be fairer, however, the withdrawal of the repayment supplement is not! More details here. (I am still quite cross!)
Further to my article explaining the changes to late returns and payment penalties, HMRC has now published further guidance on new regime.
These changes, originally intended to be introduced on I April 2022 have been delayed until 1 January 2023 (for VAT periods starting on, or after, this date).
From 1 January 2023, HMRC will charge late-payment interest from the day a VAT payment is overdue to the day the VAT is paid, calculated at the Bank of England base rate plus 2.5%.
Period of familiarisation
HMRC say that to give businesses time to get used to the changes, it will not be charging a first late payment penalty for the first year from 1 January 2023 until 31 December 2023, if the tax is paid in full within 30 days of the payment due date.
More on late returns here and on late payments here.
The current late payment and repayment interest rates applied to the main taxes and duties that HMRC currently charges and pays interest on are:
Interest rates for all other taxes here.
Details of default surcharge here.