Two important VAT updates have come into effect this summer that will be relevant to a wide range of businesses, particularly those navigating deregistration or managing tight cashflows. Firstly, HMRC now has formal regulatory powers to extend the deadline for submitting final VAT returns. Secondly, following a reduction in the Bank of England’s base rate, the interest rates applied to late VAT payments and repayments have been revised.
While these changes may appear technical on the surface, they each carry practical consequences. From avoiding penalties during business wind-downs to reassessing repayment expectations, staying informed will help you manage risk and plan with greater certainty.
Final VAT returns: regulatory clarity on extension powers
As of 14th June 2025, HMRC now has formal regulatory powers to extend the time required for submitting a final VAT return for a person or business that is no longer liable or entitled to be VAT registered. This marks a significant clarification, as HMRC has historically exercised this discretion on an administrative basis.
The change, introduced by The Value Added Tax (Amendment) Regulations SI 2025/578, updates the long-standing SI 1995/2518 and embeds more flexibility into the regulatory framework. It is fair to say that this is much more than just a legal housekeeping matter. It addresses a recurring issue where businesses, particularly those facing complex closures, were penalised for late final VAT returns despite the circumstances.
By making such extensions regulatory, HMRC is attempting to prevent the automatic generation of late filing penalties and interest notices, which can cause additional stress and costs for businesses already facing the challenges of winding down. For businesses in the process of deregistration, or advisers supporting them, this extension is a welcomed reassurance and underscores the importance of proactive and transparent communication with HMRC.
VAT interest rates adjusted following base rate drop
Following the Bank of England’s recent base rate reduction to 4.25%, HMRC’s interest rates on VAT payments have been adjusted:
- Since 28th May 2025, the interest rate payable to HMRC on late VAT payments has reduced slightly to 8.25%
- The interest on VAT repayments from HMRC also decreased to 3.25% from the same date.
These changes reflect the ongoing sensitivity of tax interest rates to broader monetary policy. For businesses facing tight cashflow or operating in sectors with volatility, these rate changes can influence the decision-making around payment scheduling and repayment expectations. The cost of missing a VAT deadline, while slightly reduced, still remains high.
Similarly, businesses owed repayments may want to bear in mind the lower return now available, especially if dealing with long-standing VAT reclaims or large capital project-related input VAT. As always, staying on top of filing and payment dates remains critical to avoid unnecessary expenses.
Next steps
If your business is approaching VAT deregistration, or you regularly manage large VAT payments or reclaims, now is the time to review your processes. Understanding how and when HMRC may grant extensions, or how interest rate adjustments could affect your cashflow, is key to avoiding disruption or unexpected costs.
For support in applying these changes to your organisation’s circumstances, speak with Lisa Burnside, VAT director at UHY, or contact your usual UHY VAT adviser. We're here to help you stay compliant and well-prepared.
