What interest is charged on late VAT and PAYE by HMRC?

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Updated: 31st August 2021

How are late VAT and PAYE payments treated?

HMRC charge interest and late payment penalties for VAT and PAYE, and this can cause serious problems for businesses already experiencing financial difficulty. Rather than charging interest at the end of the tax year, it’s charged daily, so how much will you have to pay if you’ve missed the payment deadline for your business’ VAT or PAYE?

Interest on late VAT payments

A daily interest rate of 3% is applied to any overdue VAT amounts, from the date they become overdue to the date they’re paid in full. So when is the deadline for paying your VAT? Your VAT bill needs to be paid one month and seven days following the period it relates to.

Interest might also be charged if your VAT payment is incorrect – if you’ve stated a figure on your VAT return that’s less than you’ve charged your customers, for example. You should receive notification from HMRC of how much you owe in total, however, and how the figure has been calculated.

Interest on late PAYE

Daily interest of 3.25% is applied to late payments of PAYE, starting from the date the payment becomes overdue to the day it’s paid in full. PAYE payments must be made by the 19th of the month if paying by cheque, and by the 22nd of the month if paying electronically.

If you pay electronically, interest on your payment does start to accrue in HMRC systems from the 19th if you haven’t paid it by that date, but the interest is then cancelled when the payment clears, as long as it’s paid on or before the 22nd.

You and/or your advisor can sign up with HMRC for emails to remind you when your VAT return is due using the VAT Online service. Reminders are typically sent around six weeks before a VAT return is due.

Their PAYE Online service also sends email notifications and warnings when your PAYE payment is late. This can help reduce the amount of interest charged if you’ve just forgotten the payment, but if you can’t pay you may have to consider alternative arrangements to bring your PAYE or VAT liabilities up-to-date.

So what might be available to you?

HMRC Time to Pay (TTP) arrangement

In certain instances, HMRC will agree to businesses paying off their tax arrears over an extended period of time. This is called a Time to Pay arrangement, or TTP, and typically lasts for between three and six months, although they may be willing to allow up to 12 months to pay depending on your circumstances.

Alternative finance

Alternative finance can be a good option to avoid the daily interest charges, especially if they’re going to make your company’s financial situation significantly worse.

Real Business Rescue are debt specialists and have contacts with over 50 alternative lenders around the UK. We can also help you negotiate with HMRC for more time to pay. Please contact one of the team to arrange a free same-day consultation – we work from offices across the country.

Jonathan Munnery


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