Budget 2021: Tax administration for income tax


Alexandra Docherty

Alexandra Docherty

Tax Partner


Upcoming changes to income tax penalties were announced in the Spring Budget. Due to come into effect from 6 April 2023, these will ease the pressure on those experiencing short term payment difficulties.

Currently, HMRC apply the following late payment surcharges:

  • 5% if the payment is 30 days late,
  • A further 5% if the payment is 6 months late, and
  • A further 5% if the payment is 12 months late.

This leads to significant penalties if a person falls on the wrong side of the cliff edge.

Once new rules begin to apply, from 6 April 2023, the following penalties will apply:

  • 2% if the payment is 15 days late,
  • A further 2% if the payment is more than 30 days late,
  • From day 31, the penalty will be charged at a rate of 4% per annum but it will be calculated on a daily basis.

This could lead to higher penalties for those individuals who are persistently non-compliant, but it will reduce onerous cost for individuals who are simply experiencing short term payment difficulties.

If you are experiencing difficulties paying your tax, it is important to engage with HMRC at an early stage. It is possible to agree a “Time to Pay Arrangement”, which means that HMRC will not charge late payment penalties, but this must be agreed prior to the penalties being charged.

As now, in addition to the above penalties, HMRC will continue automatically applying late payment interest at a rate of 2.5% above the Bank of England base rate. HMRC’s current late payment interest rate is 2.6%. Please note that interest is always charged, even where a Time to Pay Arrangement has been agreed with HMRC.