The Treasury advises that minor legislative amendments to the Value Added Tax Act 1996 and the Value Added Tax Regulations 1996 concerning an increase to late payment penalties and an extended deadline for submitting a final VAT return, have come into operation.
These Regulations are required under the terms of the Customs and Excise Agreement 1979 to keep the rules and procedures in relation to VAT in line with those in place in the United Kingdom.
Increased Penalties for Late VAT Payments
From 31 July 2025, new late payment penalty rates will apply to VAT accounting periods starting on or after 1 June 2025. Late payment penalties are charged when a VAT-registered taxpayer does not pay their VAT liability by the due date.
- If a VAT payment has not been fully paid within 15 days of the due date, a penalty of 3% of the unpaid VAT will apply (an increase of 1%)
- A further 3% penalty will apply if any VAT liability remains unpaid at 30 days (an increase of 1%)
- Any unpaid VAT outstanding after 30 days will be subject to a 10% penalty (an increase of 6%)
Example:
If your VAT return period runs from 1 April to 30 June 2025, the payment due date is 31 July 2025 (with an additional 7 calendar days for electronic payments). Any late VAT payment will be subject to the lower penalty rates.
However, if your VAT return period runs from 1 June to 31 August 2025, the payment due date is 30 September. As this period begins on or after 1 June 2025, any late VAT payments relating to this return will be subject to the higher penalty rates.
Extended Deadline for Final VAT Returns
From 1 July 2025, the Treasury now has the authority to extend the time period for submitting a final VAT return where processing delays or compliance activity make it difficult or impossible for a business to meet the standard deadline. This applies to businesses that de-register for VAT on or after 1 July 2025. This measure is intended to help traders avoid unfair penalties or interest charges during the de-registration process.
Further Guidance
- Late payment interest if you do not pay VAT or penalties on time
- Penalty points and penalties if you submit your VAT Return late
Taxpayers experiencing financial difficulties can request a ‘Time to Pay’ (TTP) payment plan with the Treasury. This allows them to pay their outstanding VAT liability in instalments over a longer period, during which penalties may not be charged.
Taxpayers who agree to a TTP arrangements with the Treasury may avoid penalties althogether or incur reduced penalties, depending on when the arrangement is proposed. Additionally, taxpayers have a right of appeal and will not be liable for a penalty if they have a reasonable excuse for not paying on time.
If you are unable to make your VAT payments on time and would like to explore this available payment solution, please contact the Debt Management Team:
Telephone: +44 1624 648160
Email: DMU.Customs@gov.im
Contact details for enquiries
If you require any further information or guidance, please contact us on:
Telephone: +44 1624 648100
Email: customs@gov.im
