On 6 July 2018, HMRC published Policy paper: “Interest harmonisation and sanctions for late payment”. The Paper outlines ways in which HMRC would like to modify the interest payment and penalty regimes applicable to the late payment, or repayment, of VAT.

HMRC proposes that the VAT interest rules should be aligned more closely with those applicable to income tax self-assessment and corporation tax, in order to make the tax system simpler. 

Late payment interest will be charged from the date that the payment was due and repayment interest on sums due to the taxpayer will be calculated from the date HMRC should have repaid the taxpayer.

The current late payment regime is to be replaced with a new regime to apply for VAT from April 2020.

The new late payment penalty will consist of two separate charges. The first charge is payable 30 days after the VAT payment is due and will be based on a percentage of the sum unpaid. The exact sum to be paid will depend on what payments are made or any Time to Pay (TTP) arrangement which has been agreed during this 30 day period.

A second charge will apply for sums outstanding from day 31 until payment is made. If a TTP arrangement has been agreed, penalties under the second charge will also be suspended from the date the TTP arrangement was agreed.

A copy of the Policy paper can be viewed here.