Late payment interest
Get in touch today
VAT late payment interest
The Government announced in the Spring 2023 Budget that it intended to modify the basis for accruing late payment interest on specific VAT amounts due by means of legislation. These changes were made to the interest rules and late payment penalties for VAT, which became effective on 1 January 2023. The following amendments were made:
- Late payment interest will be charged from the date HMRC made the original payment when HMRC makes an assessment to recover funds due to overpayment or repayment to a taxpayer. Currently, interest is charged 30 days after the assessment date.
- Businesses that use the VAT Annual Accounting Scheme will not be subject to late payment interest and penalties for late instalment payments. Late payment interest and penalties will only apply to any balance payments that are not paid on time. These measures will take effect on different dates:
- For late payment interest measure, from March 15, 2023.
- For late payment penalties measure, from January 1, 2023.
- For repayment interest measure, from the date of Royal Assent of Spring Finance Bill 2023. It’s important to note that the measures only applies to VAT amounts that are subject to the Finance Act 2009 interest rules or new late payment penalties under Schedule 26 to Finance Act 2021. Generally, this refers to amounts of VAT payable for prescribed accounting periods that commenced on or after January 1, 2023.
These changes are part of the government’s efforts to support businesses and improve the efficiency of the tax system. Late payment interest and penalties can create a significant burden for businesses, and the modifications to the interest rules and penalties are expected to make the system fairer and more straightforward.
In addition to these changes, the government has also introduced other measures to support businesses in the Spring 2023 Budget.
How VAT late payment interest works
Interest is charged from the first day that the payment is overdue until the day it’s paid in full. It’s calculated at the Bank of England base rate plus 4.0%.
Payments subject to interest
Interest will be charged on all late payments where VAT is due. This includes amounts overdue following:
- a VAT Return
- an amendment or correction of a return
- a VAT assessment made by HMRC
- a missed VAT payment on account.
Interest rate
HMRC interest rates are set in legislation and are linked to the Bank of England base rate. The daily late payment interest rate is set at base rate plus 4% from 6 April 2025 (was plus 2.5% on or before 5 April 2025)
The interest rate is set to encourages prompt payment. It ensures fairness for those who pay their tax on time.
Conclusion
Overall, the government’s stated aim is to create a supportive environment for businesses to thrive in and promote economic growth. These measures were said to be a step towards achieving this goal and will provide much-needed relief for businesses struggling with the effects of the pandemic.
https://www.gov.uk/guidance/late-payment-interest-if-you-do-not-pay-vat-or-penalties-on-time
