Timely tax payments are about to become more critical than ever. HMRC has announced plans to significantly increase penalties for the late payment of VAT and Self-Assessment taxes, with changes expected to generate an additional £105 million in 2028/29 and £125 million in 2029/30.
If you or your business occasionally miss tax deadlines, these changes could have a major financial impact. In this blog, we explain what’s changing, how it compares to the current system, and what you can do now to stay compliant and avoid costly penalties.
What’s Changing?
Under the proposed changes, new penalty rates will apply to late payment of VAT and Self-Assessment tax:
- 3% penalty when tax is overdue by 15 days
- An additional 3% penalty when tax is overdue by 30 days
- An ongoing penalty of 10% per annum from day 31 onwards, charged daily
These changes underline HMRC’s shift toward a more aggressive approach to late payments—described by the ICAEW as “very significant.”
How Does This Compare to the Current Penalty System?
Let’s look at how the current penalties work:
Self-Assessment Late Filing Penalties (Current Rules):
- Missed deadline (31 Jan): £100 automatic fine
- 3 months late: £10 per day up to 90 days (max £900)
- 6 months late: Additional 5% of tax due (or £300 if greater)
- 12 months late: Further 5% of tax due (or £300 if greater)
Self-Assessment Late Payment Penalties (Current Rules):
- 30 days late: 5% of tax due
- 6 months late: Additional 5% of tax due
- 12 months late: Further 5% of tax due
VAT Late Payment Penalties (Current Rules):
For VAT, the new system has already partially rolled out for some taxpayers from 2023 onwards.
It includes:
- 1st late payment: No penalty if payment is made within 15 days
- 16-30 days late: 2% penalty
- 31+ days late: Additional 2% (4% total), plus daily interest
Why This Matters for You or Your Business
The financial consequences of missing deadlines—intentionally or not—are growing. The structure of the new penalties means that even short delays in payment (just 15 days) could cost you.
For example, if you owe £20,000 in VAT:
- 15 days late = £600 penalty
- 30 days late = £1,200 penalty
- Ongoing penalty from day 31 = approx. £5.50 per day
These amounts can quickly snowball if not addressed early.
Let’s take a practical look at how the new penalty system could affect someone filing their Self-Assessment tax return late and missing the payment deadline.
For example, if you owe £5,000 in Self-Assessment tax for the 2025/26 tax year, the payment deadline is 31 January 2027, but you miss it and don’t pay until 1 April 2027 – 60 days late.
Under the new system, your penalties could look like this:
- 15 days late = £150 penalty
- 30 days late = £150 penalty
- 60 days late = £40 approx.
- Total penalty = £340
This is in addition to daily interest charges on the outstanding tax, currently set at 7.75% (as of 2024/25).
So, just two months late could cost you nearly £400 extra, and penalties will continue to accrue the longer the payment is delayed.
The above assumes the new system will apply in full to Self Assessment from 2026 onwards, aligning with recent updates to VAT penalties.
What You Can Do to Prepare
Here are some practical steps you can take now:
- Review Your Payment Processes – Make sure tax deadlines are clearly diarised and workflows are in place to avoid delays.
- Use Digital Accounting Software – Tools like Xero and integrated reminders can help you stay ahead of deadlines.
- Speak to Your Accountant – At Plus Accounting, we help our clients forecast liabilities and plan for payment well in advance.
- Check for Time to Pay Arrangements – If you’re struggling to pay on time, HMRC may offer flexible payment plans—but they must be arranged before penalties apply.
- Stay Informed – Sign up to our newsletter for reminders and updates on changes like these.
How Plus Accounting Can Help
We know how easy it can be to fall behind when running a business or managing complex finances. Our team is here to help you:
- Stay on top of tax deadlines
- Forecast and prepare for VAT and Self-Assessment liabilities
- Liaise with HMRC to set up Time to Pay arrangements if needed
- Automate your accounting processes using cloud-based software
If you’re unsure how these changes could affect you or want support reviewing your payment schedule, get in touch with us today.
Author: Louise Berry, Personal Tax Manager, Plus Accounting
Any views or opinions represented in this blog are personal, belong solely to the blog owner and do not represent those of Plus Accounting. All content provided on this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. Please note that AI has been utilised in generating content for this blog.