Can you charge VAT on a late payment fee?

Are late payment fees deductible?

The Australian Taxation Office (ATO) has reminded taxpayers that, as of 1 July 2025, interest charged by the ATO for late payments or underpayments is no longer tax deductible. The Treasury Laws Amendment (Tax Incentives and Integrity) Act 2025 is now law.

Is there VAT on penalties?

Generally, if a vat-registered entity imposes a fine, the transaction will be subject to VAT if the fine relates to a supply of goods or services. So, if a fine or penalty is not paid in respect of goods or services supplied, it will not attract VAT.

Can I charge a customer a late payment fee?

You can charge interest and compensation on any invoices which have been paid late or have not been paid within your agreed payment terms.

Can you charge late payment fees on invoices?

No matter what late payment fee you decide to charge, make sure it's clearly outlined in your written agreement before work begins. It also needs to follow your state's regulations to be legally enforceable. You can typically charge multiple late fees as long as: they follow state law and/or regulatory practices.

How to appeal VAT late payment penalty?

The process to appeal a VAT penalty involves two key steps:

1. Request an HMRC review. When you receive a penalty notice, HMRC will inform you of your right to a review. ...
2. Escalate to a tax tribunal (if needed) If you disagree with the review's outcome, you can take your case to a tax tribunal.

When can you not charge VAT?

Goods and services that are 'out of scope'

goods or services you buy and use outside of the UK. statutory fees, like the London congestion charge. goods you sell as part of a hobby, like stamps from a collection. donations to a charity, if given without getting anything in return.

Do you get a VAT penalty point for late payment?

Late Filing Penalties

If you use the annual accounting scheme, your annual VAT return will be due for submission two months after the end of your VAT accounting period. If a VAT return is submitted after the deadline, you will receive one penalty point, in the same way as driving license 'points'.

What triggers an HMRC VAT investigation?

What triggers a VAT investigation? Compliance history – does your business have a history of late payments or non-payment of VAT? Business sector – does your business operate in a sector that HMRC consider as higher-risk of VAT irregularities for example, restaurants, hair/beauty salons and the construction industry.

Are late payment fees legal in the UK?

When a payment becomes late. You can claim interest and debt recovery costs if another business is late paying for goods or a service. If you agree a payment date, it must usually be within 30 days for public authorities or 60 days for business transactions.

What is a fair late fee percentage?

While there is yet to be a universal answer regarding an appropriate rate, in most cases and across most industries, a late fee rate between 1% and 2% is often considered the standard. How much you can legally exceed this standard will depend on your business's location.

Can I dispute a late payment fee?

Look at each account line-by-line. If you see late payments or accounts that you don't recognize, be prepared to file a dispute. Contact your card issuer or the credit bureaus to dispute any erroneously reported late payments. By law, your card company must keep up-to-date records of your credit behavior.

How much can I charge for a late payment fee?

Because the government doesn't regulate a business' late payment fee, you can, in theory, charge whatever payment interest rate you see fit. However, small companies tend to charge a late transaction payment interest rate of 1.5%, while larger enterprises charge 2.5% and up.

Can I charge a late fee on overdue invoices?

Asking for a reasonable amount

Be proportionate about the amount charged for a late payment. While there are no hard and fast rules about how much to charge for a late payment fee, make sure it's an amount that will encourage the client to pay on time and that will cover at least the admin time to chase up the payment.

Is a 10% late fee too much?

Setting an Appropriate Late Fee Amount for Rent

The late fee should be fair and reasonable, typically falling between 5% and 10% of the total monthly lease amount. Landlords should clearly communicate the late fee amount, due date, and when the fee will be applied to the tenant, ensuring that no exceptions are made.

Is a late payment fee vatable?

VAT on Late Payment Charges

With regards to VAT and late payment charges, in most cases, as no supply has been made, late payment compensation and late payment interest are considered to be outside the scope of VAT.

Can a business charge a late payment fee?

You can charge a flat rate or a monthly finance charge, usually a percentage of the overdue amount. For example, companies typically charge a 1% to 2% late fee.

Is a late payment fee permissible?

If a payment has been missed, then you can claim interest and debt recovery costs, as governed by The Late Payment of Commercial Debts (Interest) Act 1998. And you're entitled to compensation, even if your invoice or payment terms didn't mention it.

When to not charge VAT?

Education and training from eligible schools, colleges, or universities. Charity donations and events. Health services. Insurance, financial services, and investment.

What is the penalty for late payment of VAT?

How much is the penalty for late VAT payment? The penalty structure for late VAT payment is as follows: 2% of the unpaid tax immediately after the due date. 4% additional penalty if the tax remains unpaid after seven days.

What is not covered by VAT?

Certain goods and services are exempt from VAT. This means that they are not subject to VAT and therefore, do not incur the standard 20% VAT charge. Exempt goods and services include insurance, education, and health services.