VAT Late Payment Penalties Overview in the UK

Late payment penalties for VAT depend on days overdue, determined by the due date for VAT returns and assessments. The first penalty is 3% of the unpaid amount on day 15, 2% on day 15, and 3% on day 30 if no Time to Pay (TTP) application is made. The second penalty is 10% annual rate on outstanding amount, 4% on day 31. HMRC may assess penalties at intervals, with assessments made 7 days before the 2-year time limit.

Late payment penalties for VAT depend on days overdue, determined by the due date for VAT returns, assessments, etc. (per CH193080). Day 1 is the first day after the due date.

First Late Payment Penalty

After Day 15: If VAT remains unpaid and no Time to Pay (TTP) application is made:

• For tax due on/after 31 May 2025 (unless period began before 1 Apr 2025): 3% of amount unpaid on day 15.
• For tax due on/before 30 May 2025 or periods starting before 1 Apr 2025: 2% of amount unpaid on day 15.

After Day 30: If still unpaid and no TTP:

• Due on/after 31 May 2025: 3% of day 15 amount + 3% of day 30 amount.
• Due on/before 30 May 2025 or pre-1 Apr 2025 periods: 2% of day 15 amount + 2% of day 30 amount.
• Penalty charged after day 30, based on one or both percentages.

Second Late Payment Penalty

• From Day 31: If VAT remains unpaid and no TTP:
• Due on/after 31 May 2025: 10% annual rate on outstanding amount.
• Due on/before 30 May 2025 or pre-1 Apr 2025 periods: 4% annual rate.
• Accrues daily from day 31 until full payment or successful TTP proposal.
• HMRC may assess penalties at intervals (per regulations). Under The Penalties for Failure to Pay Tax (Schedule 26 to Finance Act 2021) (Assessments) Regulations 2024 (effective 4 Dec 2024), assessments can be made for unpaid tax from 7 days before the 2-year time limit.

Late Payment Penalties Table (for periods starting after 1 Apr 2025, due after 31 May 2025)

Penalty			Days Overdue	Customer Situation		Penalty Position
No Penalty			Up to 15	Pays in full or proposes TTP*		No penalty charged
First Penalty			16–30	Pays in full		3% of amount unpaid on day 15
First Penalty			16–30	Proposes TTP*		3% of amount unpaid on day 15
First Penalty			16–30	No payment or TTP*		3% of day 15 amount + 3% of day 30 amount
Second Penalty			31+	Pays in full or proposes TTP*		10% annual rate from day 31 until payment/TTP; calculated on final day’s balance
Second Penalty			31+	No payment or TTP* by 2-year limit		10% annual rate from day 31 until assessment (7 days before 2-year limit); based on final day’s balance

 

Note: TTP proposal must be agreed and upheld. For periods starting before 1 Apr 2025 or due on/before 30 May 2025, rates are 2% (first penalty) and 4% (second penalty).

References:

• FA21/SCH26/PARA 4: No penalty
• FA21/SCH26/PARA 7: First Penalty
• FA21/SCH26/PARA 8: Second Penalty
• The Penalties for Failure to Pay Tax (SCH26 FA 21) (Assessments) Regulations 2024
• The Finance Act 2021 (Increase in Schedule 26 Penalty Percentages) Regulations 2025