The new HMRC late-payment regime, six months in

The points-based late-submission penalty regime, paired with the revised late-payment regime, has been live across VAT and Self Assessment long enough now that we can stop talking about it in the future tense and start describing what it actually does. Six months in, the picture is more nuanced than either HMRC or the trade press suggested at launch.

What changed, briefly

Under the old default surcharge, a single late VAT payment could land you in a 12-month surcharge period at 2%, escalating to 5%, 10% and 15% on subsequent slips. The new regime separates submissions from payments. Submissions accrue points (a threshold of four for quarterly filers triggers a £200 fixed penalty). Payments attract first-stage and second-stage charges based on how late they are: 2% of the unpaid amount at day 15 if you haven't agreed a Time to Pay arrangement, a further 2% at day 30, and 4% per annum daily thereafter, plus interest at the standard rate (currently 8.25%, base plus 4%).

What we are actually seeing

Three patterns from the broker desk. First, the regime is materially kinder to the business that pays a few days late than the old surcharge ever was. A £60,000 VAT bill paid on day 14 attracts no late-payment charge at all under the new system. The same bill under the old default surcharge could have triggered a 2% surcharge if you were already in a surcharge period. We see clients who would previously have rushed to fund are now comfortably absorbing a one-week slip.

Second, the day-15 cliff matters more than HMRC's comms suggested. The 2% charge is automatic, and it lands without warning beyond what you can read off your own dashboard. The week-two scramble is now the dominant pattern in our inbound enquiry volume. Businesses realising on day 12 that the cash isn't going to land on day 15. Loans we are arranging in this window are typically 6-month VAT facilities settling on or before day 14.

Third, the Time to Pay incentive is real and underused. Agreeing a TTP before day 15. Or before day 30 for the second-stage charge , cancels the corresponding penalty. HMRC will engage on TTP for VAT and PAYE up to around £100,000 over the phone in many cases, with no formal documentation required. We are recommending the TTP route more often than we did under the old regime, particularly where the amount is sub-£100k and the cash gap is short.

Where loans still beat penalties

On bills above the TTP-friendly threshold, or where the business wants to protect its compliance record for future borrowing, a commercial loan still wins on cost and certainty. A 6-month VAT loan at the rates we are seeing (1.0–1.6% per month plus a 1% setup) on a £100k bill costs roughly £6,000 to £10,000 over the term. The equivalent penalty exposure at 30 days late on the same bill is £4,000 in surcharges plus interest accruing daily. And you still owe the £100k. The maths flips in favour of the loan once you cross about 25 days late, and decisively beyond that.

The take

The new regime is fairer to the occasionally-late business and sharper on the persistent-late business. For finance directors who have been managing VAT cashflow on the assumption that the old 12-month surcharge clock was the binding constraint, it is worth rebuilding the model. Day 15 is the new tripwire. Plan around it, not around month-end.