Late payment interest

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The government has announced in the Spring 2023 Budget that it intends to modify the basis for accruing late payment interest on specific VAT amounts due by means of legislation. These changes will be made to the new interest rules and late payment penalties for VAT, which became effective on January 1, 2023. The following amendments will be made:

  1. 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.
  2. 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 will only apply 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 commence 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.

Overall, the government’s aim is to create a supportive environment for businesses to thrive in and promote economic growth. These measures are a step towards achieving this goal and will provide much-needed relief for businesses struggling with the effects of the pandemic.