You can avoid unnecessary penalties and ensure smooth tax operations by staying compliant with filing deadlines and payment obligations. If you’re concerned about potential liabilities or need assistance managing your tax affairs, we’re here to support you.
Penalty System
HMRC has implemented a system for late VAT payments, effective from 1 January 2023. This system introduces two types of penalties: the first and second late payment penalties.
First late payment penalty:
- Timing: Applies if the VAT payment is 16 or more days overdue.
- Calculation: 2% of the VAT owed on day 15. An additional 2% of the VAT owed on day 30 if the payment remains outstanding.
Second late payment penalty:
- Timing: Applies if the VAT payment is 31 or more days overdue.
- Calculation: A daily penalty charged at 4% per annum on the outstanding balance, accruing from day 31 until the debt is paid in full.
HMRC charges interest on any unpaid VAT from the first day the payment is overdue until it is paid in full. The interest rate is set at the Bank of England base rate plus 2.5%.
For more detailed information, refer to HMRC’s official guidance on late payment penalties.
Inheritance tax penalties
Failure to submit an accurate inheritance tax return by the due date can result in:
- Up to 6 months late: A fixed £100 penalty, regardless of the tax owed.
- 6 to 12 months late: An additional £100 penalty may apply.
- Over 12 months late: A penalty of up to £3,000 can be charged.
Interest on unpaid tax is also charged at the Bank of England base rate plus 2.5%, similar to VAT.
Key considerations
- Meet deadlines: Ensure all tax returns and payments are made on time to avoid penalties and interest.
- Check accuracy: Submitting incorrect returns, even unintentionally, can result in penalties. Double-check figures or seek professional advice if in doubt.
- Proactive communication: If you can’t pay on time, contact HMRC to agree on a payment plan before the due date to reduce penalty exposure.
- Stay organised: Keep accurate records and ensure you know all tax obligations relevant to your circumstances.
- Monitor updates: Penalty rates and interest are subject to change, so stay informed of the latest HMRC rules.
The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.