The Chancellor’s Spring Statement introduced harsher penalties for late taxpayers under Making Tax Digital for Income Tax (MTD for IT).
With the Government confirming an extension to sole traders and landlords earning more than £20,000 from April 2028, a lot more taxpayers – an estimated 900,000 – will need to pay tax via MTD for IT.
Under the current rules, you will not receive a penalty if you pay your tax within the first 15 days of the deadline.
Penalties then apply at the following rates:
- Day 15 – two per cent
- Day 30 – four per cent
- Annual interest rate on late payments – four per cent
However, from April 2025, the new penalty rates will be:
- Day 15 – three per cent
- Day 30 – six per cent
- Annual interest rate on late payments – 10 per cent
The 15-day grace period, however, will remain.
These increased penalties also apply to taxes paid under MTD for VAT.
In addition, the annual rate of interest payable on late paid tax increased on 1 April 2025 by 1.5 percentage point so is now 8.5 per cent.
It is important to note that the current five per cent late payment penalties for tax due under Self-Assessment are unchanged.
How to avoid late tax penalties
Higher penalty charges will be painful for those with cashflow difficulties, businesses still getting to grips with MTD for IT, and those who simply forget to pay their taxes on time.
To avoid getting caught out, make sure your bookkeeping is up to date and that you have money set aside for tax bills in advance.
Give yourself plenty of time to submit your tax return and make payments. Leaving everything to the last minute will be even more costly than before.
Avoid getting caught by costly penalties. Get in touch for urgent advice and guidance.