Rachel Reeves hikes fines for paying tax returns late

Taxpayers face higher fines for not paying VAT and income tax self assessment (Itsa) on time under new rules announced as part of Chancellor Rachel Reeves’ spring statement.

Late payment penalties for the two levies are to rise in April as part of a Government push to raise more than £1 billion in extra tax revenue.

People who file their Vat and Itsa tax returns late will have to pay 3% of the outstanding bill when it is overdue by 15 days, up one percentage point on the current level.

After 30 days, the penalty rises by another 3%, up from 2% currently, while there will also be a 10% charge per annum when tax is overdue by 31 days or more, up from 4%.

Labour also said it is also expanding its rollout of its scheme to digitise the tax system, called Making Tax Digital.

The system will be expanded to sole traders and landlords with incomes over £20,000 from April 2028.

And the Treasury “will continue to explore how it can best bring the benefits of digitalisation” to the roughly four million taxpayers whose income is below the £20,000 threshold, it said.

Susannah Streeter, an analyst at Hargreaves Lansdown, said the Government is “scouting for easy wins to fill its coffers more effectively and has set its sights on the self-employed who use the platform Making Tax Digital to file their returns”.

“So, it’s an administrative burden which will really pay to be on top of. Starting early will mean there is less panic over paperwork,” she added.

It comes after 1.1 million people missed the deadline to file their self-assessment tax return in 2024, according to HMRC.

But the Public Accounts Committee (PAC) also criticised HM Revenue and Customs (HMRC) in January for poor customer service.

The PAC said it had received written submissions from organisations representing taxpayers and agents saying continual failings in customer service had eroded trust in HMRC.

In the first 11 months of 2023-24, HMRC cut off nearly 44,000 customers who had been waiting 70 minutes to speak to an adviser.

The Government department said at the time that the PAC’s criticism was “baseless” and said wait times were coming down.