UK Government Introduces Changes to VAT Late Payment Penalties and Final Return Submission

Strategic Insights -

The UK Government has implemented new regulations to the Value Added Tax Act 1996 and the Value Added Tax Regulations 1996, amending late payment penalties and extending the deadline for submitting a final VAT return. These changes aim to align VAT rules with those in the United Kingdom and provide relief to businesses experiencing financial difficulties during the de-registration process. The new regulations come into operation from 31 July 2025, with increased penalty rates for late VAT payments and a revised deadline for submitting a final VAT return from 1 July 2025.

Key Takeaways:

  • From 31 July 2025, new late payment penalty rates will apply to VAT accounting periods starting on or after 1 June 2025, with penalties increasing by 1-6% depending on the delay.
  • Late payment penalties are charged when a VAT-registered taxpayer does not pay their VAT liability by the due date, with a 3% penalty applying if VAT remains unpaid after 15 days, increasing to 10% for unpaid VAT after 30 days.
  • Businesses de-registering for VAT on or after 1 July 2025 may have the deadline for submitting a final VAT return extended due to processing delays or compliance activity.
  • Taxpayers experiencing financial difficulties can request a 'Time to Pay' (TTP) payment plan with the Treasury, which may allow them to avoid or reduce penalties.
  • Taxpayers have a right of appeal and will not be liable for a penalty if they have a reasonable excuse for not paying on time.
  • The Treasury's Debt Management Team can be contacted for further information or guidance on VAT payment solutions.

Statistics:

  • The new late payment penalty rates will apply to VAT accounting periods starting on or after 1 June 2025.
  • The increased penalty rates range from 1% to 6%.
  • 3% of the unpaid VAT will be charged as a late payment penalty after 15 days.
  • A further 3% penalty will apply if any VAT liability remains unpaid at 30 days.
  • 10% of the unpaid VAT will be subject to a penalty after 30 days.
  • The deadline for submitting a final VAT return will be extended for businesses de-registering for VAT on or after 1 July 2025.

Sources:

  • HM Treasury: Increased Penalties for Late VAT Payments From 31 July 2025. (No date)
  • HM Treasury: Extended Deadline for Final VAT Returns. (No date)
  • HM Treasury: Taxpayers experiencing financial difficulties. (No date)