April 2025: Late Payment Penalties Rise Sharply — What This Means for Your Business

April 2025: Late Payment Penalties Rise Sharply — What This Means for Your BusinessWritten on April 14, 2025 by Kirk Rice LLP

From 1 April 2025, HMRC has significantly increased late payment penalties and interest rates for VAT and other taxes.

These changes, announced in the Spring Statement, aim to improve compliance — but for many businesses, they could result in substantially higher costs for even relatively short payment delays.

What’s Changed?

The old system (in place from January 2023 to March 2025) applied penalties in stages for late payments. Under the new system, those penalties are now much higher — and they are cumulative.

Here’s a breakdown of how the penalty structure has changed:

When Payment Is Made	Old System (Pre-April 2025)	New System (From April 2025)
Days 1–15	No penalty	No penalty
Day 16	Flat 2% penalty	Flat 3% penalty
Day 30	Additional flat 2%	Additional flat 3%
Day 31	Additional flat 4%	Additional flat 10%
Total Penalties by Day 31	8% of unpaid tax	16% of unpaid tax
Late Payment Interest	Base rate + 2.5% (7% at current base)	Base rate + 4% (currently 8.5%)

Interest continues to accrue daily in addition to the fixed penalties.

Example: What This Could Cost You

Let’s say your business owes £20,000 in VAT and the payment is made 60 days late.

Under the Old System:

Day 16: 2% = £400
Day 30: Additional 2% = £400
Day 31: Additional 4% = £800
Total flat penalties = £1,600
Interest at 7% annual rate (base + 2.5%) ≈ £230
Total Cost = £1,830

Under the New System (April 2025 onwards):

Day 16: 3% = £600
Day 30: Additional 3% = £600
Day 31: Additional 10% = £2,000
Total flat penalties = £3,200
Interest at 8.5% annual rate (base + 4%) ≈ £280
Total Cost = £3,480

That’s nearly double the cost for the same late payment under the new rules.

What This Means for You

This is a major shift in HMRC’s approach to late tax payments. Businesses must now be extra vigilant: a delay of just over a month could trigger 16% in penalties, plus rising interest charges.

How We Can Help

We’re here to help you stay ahead of these changes and avoid unnecessary penalties. As your accountants, we can:

Monitor key tax payment deadlines
Set up reminders and systems to avoid late payment
Support your cash flow planning
Act quickly to deal with HMRC on your behalf if issues arise

If you’re worried about how this might affect your business or want to review your current processes, get in touch with us today at info@kirkrice.co.uk. Let’s make sure your business is protected from costly penalties.

Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. The information is based on current tax legislation which may change in future. The FCA does not regulate tax and trust advice.

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