The UK’s HM Revenue and Customs (HMRC) has increased penalties for unpaid tax liabilities for VAT and Making Tax Digital for Income Tax Self Assessment taxpayers under the Finance Act 2021, following the introduction of Regulations SI 2025/589 made on 13 May 2025.
The changes apply to VAT taxpayers, Making Tax Digital trial users, and any future regimes listed in Schedule 26.
Under the new rules for penalties for late VAT payment, the penalty for 15-day late payments is increased from 2% to 3% on the unpaid VAT. If taxable persons are late by 30 days, a penalty of 3%, instead of the previous 2%, will apply on top of the 15-day penalty.
Furthermore, taxable persons will be charged an extra 10% per year on the due VAT for 31 days or more of late payments. This is an increase of 6% from the previous penalty of 4%.
HMRC also published a policy paper outlining changes.
The new rates are retroactively applicable from 1 April 2025.
