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Time To Pay? New VAT Late Payment Penalties

Written by admin on . Posted in Insolvency, Time To Pay Arrangements, Winding Up Petitions. No Comments on Time To Pay? New VAT Late Payment Penalties

It is now more expensive to be late when it comes to making a VAT payment. The slowest payers now face a 250% increase to an annualised rate. In addition, the rate of late payment interest has also increased.

Late payment penalties

Payment for each VAT return is considered separately, and penalties can be avoided if a payment is made within 15 days of the due date. Keep in mind:

  • An initial 3% penalty is charged if payment is made more than 15 days late (previously 2%).
  • If more than 30 days late, a further 3% penalty is charged – so, a 6% penalty in total (previously 4%).

Furthermore, a daily penalty at an annualised rate of 10% is charged immediately after the initial 30-day period (previously 4%).

Late payment interest

Interest is charged from the due date until the date VAT is paid. This means that interest can be due even when no penalty has been incurred, because of the requirement to pay within 15 days. From 6 April 2025, HMRC has added a further 1.5% surcharge to the late payment interest rate, so it now stands at 8.5%.

With the bank base rate currently at 4.5%, the daily penalty rate of 10% and the late payment interest rate of 8.5% are somewhat punitive.

Preventative measures

Simply burying your head in the sand over an overdue VAT liability will just see the debt spiral as penalties and interest are added on.

Setting up a time to pay arrangement will avoid penalties being charged. However, such an arrangement will not retrospectively remove any penalties already incurred, and late payment interest will still be charged. An arrangement cannot be set up by those using either the cash accounting or annual accounting schemes.

If some funds are available, it is better to make a payment on account by the due date, leaving only the balance to be paid late. This will avoid late payment interest as well as (if no arrangement is in place) penalties on the amount paid on time.

Details about setting up a payment plan can be found here.

Photo by Justus Menke on Unsplash

Paying the high income child benefit charge

Written by admin on . Posted in Employment Tax, High Income Child Benefit Charge, self-assessment. No Comments on Paying the high income child benefit charge

From this summer, employed taxpayers who have to pay the high income child benefit charge (HICBC) will no longer need to complete a self assessment tax return. Instead, they can report the charge using HMRC’s new online service.

When the HICBC is payable

The HICBC only comes into play when an individual – or their partner – receives child benefit and their annual income exceeds £60,000. This means:

  • The charge removes 1% of child benefit for every £200 of income over £60,000.
  • Once income reaches £80,000 the charge is 100%, so the amount of child benefit is essentially reduced to nil.

For those with several children, the HICBC can result in a high effective marginal tax rate.

For 2025/26, child benefit of £26.05 a week is paid for a first child, with £17.25 a week paid for each subsequent child.

New online service

 Employed taxpayers will be able to use HMRC’s new digital service to report the amount of child benefit received. This will give them the option of paying the HICBC through PAYE:

  • Unless the taxpayer has any other income or chargeable gains, there will be no need to submit a tax return following the end of the tax year.
  • Taxpayers who are required to file a tax return for another reason will still need to report the HICBC on their return.
  • Anyone who has previously submitted a tax return needs to be careful because HMRC will continue to issue a notice to make a return. Penalties will be incurred if the notice is ignored.

It remains to be seen whether the new online service will alleviate the problems associated with the HICBC. One of the main issues continues to be a lack of awareness, despite the charge being in place for more than ten years. Also, most employed taxpayers are not used to dealing with HMRC.

Photo by Markus Spiske on Unsplash

Making Tax Digital expands

Written by admin on . Posted in Making Tax Digital, self-assessment, Self-Employed. No Comments on Making Tax Digital expands

Self-employed people and landlords with an income between £20,000 and £30,000 will be required to use Making Tax Digital (MTD) from 6 April 2028. This will bring a further 900,000 low-income taxpayers under the MTD regime.

HMRC previously stated that those with an income between £20,000 and £30,000 would be mandated before the end of this parliament. The specific start date of April 2028 is therefore earlier than expected.

Timing

Taxpayers with an income of more than £50,000 will be mandated from 6 April 2026 for the 2026/27 tax year. The deadline for finalising MTD obligations for this year is not until 31 January 2028, which doesn’t give HMRC much time to sort out any problems before the new cohort of taxpayers join the system in April 2028. At present:

  • Unrepresented taxpayers with an income between £20,000 and £30,000 are going to need software that is either free or low-cost.
  • The availability of such software is quite limited, although more options might become available by April 2028.

The relevant income for meeting the £20,000 threshold will be that for the 2026/27 tax year.

In the future, the MTD threshold might be lowered again as the government has stated there are plans to expand the regime to include those with an income below £20,000.

Self assessment

HMRC has also announced that the year-end self assessment tax return must be submitted using MTD or other suitable software. It was previously thought that taxpayers would be able to use HMRC’s online service, but this is not going to be the case.

When selecting suitable MTD software, it is important to make sure it can also deal with the tax return submission. If the MTD software cannot do this, a different software package will be required to complete the year-end requirement.

HMRC’s list of software that’s compatible with MTD for income tax can be found here.

Photo by marianne bos on Unsplash

Sick Pay and Small Employers’ Relief

Written by admin on . Posted in Employment Tax, Sick Pay. No Comments on Sick Pay and Small Employers’ Relief

Statutory payments can be problematic to administer for smaller employers, but in a rare instance of generosity HMRC compensates for this. Also, from 6 April 2025, the rate of compensation will almost triple from the current 3% to 8.5%.

Employers can usually reclaim 92% of statutory payments for maternity, paternity, adoption, shared parental and parental bereavement (statutory sick pay is no longer recoverable). However, smaller employers can recover 100% of the cost as well as the compensation. So, the total rate of recovery will be 108.5% from 6 April 2025.

Statutory neonatal care pay is being introduced from 6 April 2025, which will be recoverable on the same basis. It will be paid to a parent when their newborn is sick in hospital.

Smaller employers

You are a smaller employer if your total class 1 NIC payments were £45,000 or less for the tax year before the employee’s qualifying week:

  • Both employee and employer contributions are included, but not class 1A or 1B NICs.
  • The employment allowance reduction is ignored.
  • The qualifying week will vary depending on the type of leave. For example, for maternity pay, the qualifying week is the fifteenth week before the baby’s due date.

 The main rate of employee class 1 NIC is lower for 2024/25 than it was for 2023/24, so an employer who was previously just outside of the £45,000 threshold might qualify from 6 April 2025.

An employer can apply to HMRC to be paid in advance if they cannot afford to make statutory payments.

Recovery

Relief, whether at the normal rate or at the smaller employer rate, is claimed on a monthly basis through payroll software using the employer payment summary. Payroll software should do everything automatically, although you may need to select that you are a small employer.

HMRC’s guide to getting financial help with statutory pay can be found here.

Social media suggestion:

Statutory payment relief is increasing from April 2025. Read the finer details for small business owners here #smallbusiness #statutoryrelief #HMRC

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Side hustles and tax obligations

Written by admin on . Posted in HMRC Investigations, self-assessment. No Comments on Side hustles and tax obligations

HMRC has recently launched their Help for Hustles campaign to help people earning extra income to understand their tax obligations.

Online platforms, such as eBay, are now required to report users’ income to HMRC. Anyone who is selling goods or services online therefore needs to be aware of their tax reporting requirements. Many regular activities that might have been considered a lucrative hobby now fall into the ‘trading’ category:

  • Buying or making things to sell: Activities such as selling things that you have made, upcycling furniture to sell, or buying items with the aim of reselling them at a profit. All count as trading.
  • Side gigs: Even if carried out in your spare time, a side gig such as tutoring or gardening counts as trading. Using an App to pick up work will almost certainly mean trading.
  • Multiple jobs: Working many different side hustles, without having a main source of income, means you are trading.
  • Content creators and influencers: It is likely to be trading if you are paid to make sponsored social media posts for a brand or are earning income from advertisements on your online videos or blog.
  • Property income: This might be from renting out a spare room in your home, a holiday letting, or renting out property using an App such as Airbnb.

You will not normally be treated as trading if you are just selling off some unwanted personal possessions online after clearing out your loft or garage.

Exemptions

If you are trading, no tax will be due if your income is £1,000 or less for the tax year:

  • If income exceeds £1,000, you will need to inform HMRC and complete a self-assessment tax return.
  • Although everyone with income of less than £100,000 is entitled to a personal allowance of £12,570, this allowance is particularly relevant for those with multiple jobs, but no main source of income.

Those renting out a spare room can benefit from a tax-break of up to £7,500 a year. Other property income doesn’t need to be reported to HMRC if less than £1,000 for the tax year.

Details of HMRC’s side hustles campaign can be found here.

Photo by Justin Veenema on Unsplash

Making Tax Digital Expands

Written by admin on . Posted in Landlord, Making Tax Digital, MTD, self-assessment. No Comments on Making Tax Digital Expands

Self-employed people and landlords with an income between £20,000 and £30,000 will be required to use Making Tax Digital (MTD) from 6 April 2028. This will bring a further 900,000 low-income taxpayers under the MTD regime.

HMRC previously stated that those with an income between £20,000 and £30,000 would be mandated before the end of this parliament. The specific start date of April 2028 is therefore earlier than expected.

Timing

Taxpayers with an income of more than £50,000 will be mandated from 6 April 2026 for the 2026/27 tax year. The deadline for finalising MTD obligations for this year is not until 31 January 2028, which doesn’t give HMRC much time to sort out any problems before the new cohort of taxpayers join the system in April 2028. At present:

  • Unrepresented taxpayers with an income between £20,000 and £30,000 are going to need software that is either free or low-cost.
  • The availability of such software is quite limited, although more options might become available by April 2028.

The relevant income for meeting the £20,000 threshold will be that for the 2026/27 tax year.

In the future, the MTD threshold might be lowered again as the government has stated there are plans to expand the regime to include those with an income below £20,000.

Self assessment

HMRC has also announced that the year-end self assessment tax return must be submitted using MTD or other suitable software. It was previously thought that taxpayers would be able to use HMRC’s online service, but this is not going to be the case.

When selecting suitable MTD software, it is important to make sure it can also deal with the tax return submission. If the MTD software cannot do this, a different software package will be required to complete the year-end requirement.

HMRC’s list of software that’s compatible with MTD for income tax can be found here.

Photo by Mo on Unsplash

Spring Statement: The Magic of £9.9 billion

Written by admin on . Posted in Budget. No Comments on Spring Statement: The Magic of £9.9 billion

There were no tax increases in the Chancellor’s Spring Statement (upgraded from an initial Spring Forecast), but that might just be pain deferred.

Before becoming Chancellor, Rachel Reeves set out a new goal for the public finances, now badged the ‘Stability Rule’. In simple terms, this requires the Government should at least match its day-to-day expenditure with what it receives in tax and other revenue. In 2024/25, the Office for Budget Responsibility (OBR) projects there will be a shortfall under this rule (technically a current budget account deficit) of £60.7 billion. Following past government tradition of fiscal targets, the Chancellor has set a five-year goal taking us to 2029/30.

When Rachel Reeves presented her Budget last October, the OBR projected that she would meet her Stability Rule with £9.9 billion to spare. However five months later, the OBR recalculated the margin (often called headroom) in preparation for the Spring Statement and concluded that, with no changes, the Rule would be missed by £4.1 billion – a £14 billion reversal.

Given that the margin of £9.9 billion (about 0.7% of total government expenditure) proved inadequate last time, it is surprising that the new headroom figure is also £9.9 billion. This is despite the raft of Spring Statement measures – mostly spending cuts. The apparent circularity of the Spring Statement process has prompted speculation that the large cuts to welfare benefits were tailored to fit the Stability Rule, rather than wholly founded in encouraging more people into work.

The problem with maintaining a small £9.9 billion headroom is that when the OBR’s next assessment arrives in the autumn, there is a similar risk of missing the Stability Rule once again. The OBR’s judgement day will coincide with the Chancellor’s one ‘fiscal event’ of the year – the Autumn Budget. A second miss would probably see Reeves turn to tax increases rather than more spending cuts to recover the situation.

There were already signs of preparation for such a move in the Spring Statement. For example, hidden in the main document was a comment about reviewing the balance between cash and shares in Individual Savings Accounts (ISAs). Reducing the amount that could be placed in cash ISAs would yield extra revenue, because it would mean less tax relief being given.

It seems likely that, as happened in 2024, speculation about tax rises will get underway before summer begins. Taking time to focus on your financial planning over the next few months could be more important than ever. You have been warned.

Photo by Frames For Your Heart on Unsplash

New tax year planning

Written by admin on . Posted in Budget, Company Director, Employment Tax, High Income Child Benefit Charge. No Comments on New tax year planning

The start of the new tax year warrants as much planning as the end of the old tax year.

While the end of the tax year on 5 April is a major focus of tax planning, it doesn’t end there. The following day may require much less immediate attention, but there is an argument for considering it to be just as important. For example:

  • Personal allowances The personal allowance for 2025/26, the new tax year, remains at £12,570, the same as it has been since 2021/22. Above that level, income tax will normally enter the equation. If you (or your spouse/civil partner) do not have enough income to cover the personal allowance, then you could consider transferring investments between yourselves so that the income generated escapes tax. You should also consider whether or not to claim the marriage allowance if your partner pays no tax and you pay no more than the basic rate (or vice versa).
  • At the opposite end of the income scale, once your income (after certain deductions) exceeds £100,000, you start losing your personal allowance at the rate of £1 for each £2 of excess. In those circumstances, a transfer of investments and the income generated can also make sense – this time by reducing your taxable
  • Other tax allowances and bands Similar principles apply to other allowances, such as the personal savings allowance (up to £1,000), the dividend allowance (£500) and the thresholds of tax bands. It is much easier to shuffle around future income at the start of the tax year than attempt to do so as 5 April looms near.
  • High income child benefit charge (HICBC) If you or your partner (marriage is irrelevant) have income (after certain allowances) of over £60,000 and both claim and receive payments of child benefit, then whichever of you has the higher income is taxed on that benefit. The tax charge is 1% of the child benefit for each £200 of income over the £60,000 threshold, meaning the tax matches the benefit at £80,000. If you have two children, this is equivalent to an extra 11.26% added to your marginal tax rate. Shifting your investment income could therefore save tax, even if you both pay the same marginal rate of tax.

For more details on these and other new tax year opportunities, please talk to us – as with year-end planning, the sooner, the better.

Photo by Maxime Horlaville on Unsplash

Late payment interest warning

Written by admin on . Posted in self-assessment, Tax, Time To Pay Arrangements. No Comments on Late payment interest warning

A warning for the 1.1 million taxpayers who missed the 31 January filing deadline. It isn’t just penalties you will be incurring for subsequent late payment, but also late payment interest.

A record amount of late payment interest was paid to HMRC during 2024 to a total of £409 million, more than triple what it was three years ago.

Why the increase?

The interest rate charged by HMRC was 2.6% at the start of 2022 but increased to an average of 7.6% for 2024. The rate has been 7.0% since 25 February 2025:

  • With tax allowances and thresholds frozen since 2021 – and with no increases on the cards until 2028 – more taxpayers are either being drawn into the tax net or facing higher rates of tax.
  • The reductions to the capital gains tax (CGT) exemption have also contributed.

If that were not bad enough, things are only going to get worse from 6 April 2025, from when HMRC will be adding a 1.5% surcharge to the late payment interest rate. So, if nothing changes, the current rate will jump to 8.5%.

Preventative measures

With the rate of late payment interest so high, it will almost certainly make sense to use savings to pay off any overdue tax liabilities.

With another tax year ending, get your self-assessment tax return in as early as possible. You will then know what your tax liability is well in advance of the due date and can plan accordingly.

Regular saving into a separate bank account is a good approach. Or set up a budget payment plan with HMRC to make weekly or monthly payments towards your next self-assessment tax bill.

Simply burying your head in the sand over an overdue tax liability will only see the debt spiral. You should engage with HMRC and try to agree a payment arrangement even though this will not prevent interest being charged.

Details about setting up a budget payment plan with HMRC can be found here.

Photo by Maarten van den Heuvel on Unsplash