What Are The New VAT Penalties?

Starting from 1 January 2023, new VAT penalties and interest charges will be applicable to those who submit VAT Returns for accounting periods commencing on or after the same date. New VAT penalties will replace the default surcharge if HMRC receives late VAT returns or late payments.

If you submit a nil or repayment VAT return after the deadline, you will be subject to financial penalties and late submission penalty points. There will also be changes to how VAT interest is calculated.

Late Filing Penalties

Under the new VAT penalty regime, effective from 1 January 2023, you will receive one late submission penalty point for each VAT Return you submit late. Once you reach the penalty threshold, you will receive a £200 penalty and an additional £200 penalty for each subsequent late submission. The penalty points threshold will vary depending on your submission frequency.

You can reset your points back to zero by submitting your returns on or before the due date for your period of compliance, which is based on your submission frequency, and ensuring that HMRC has received all outstanding returns due for the previous 24 months.

Payment Penalties

Late payment penalties: the sooner you pay, the lower the penalty rate will be. Under the new VAT penalty regime, you will not be charged a penalty if you pay the VAT you owe in full or agree to a payment plan on or between days 1 and 15. If you pay in full or agree to a payment plan on or between days 16 and 30, you will receive a first penalty calculated at 2% of the VAT you owe on day 15. If your payment is 31 days or more overdue, you will receive a first penalty calculated at 2% on the VAT you owe on day 15 plus 2% on the VAT you owe on day 30 and a second penalty calculated at a daily rate of 4% per year for the duration of the outstanding balance.

Familiarisation Period

To familiarise you with the new VAT penalties regime, HMRC will not charge a first late payment penalty for the first year, from 1 January 2023 to 31 December 2023, if you pay in full within 30 days of your payment due date.

Late Payment Interest

From 1 January 2023, HMRC will charge late payment interest from the day your payment is overdue until the day your payment is made in full. Late payment interest is calculated as the Bank of England base rate plus 2.5%.

Repayment Interest

Lastly, for accounting periods starting on or after 1 January 2023, HMRC will pay you repayment interest on any VAT that you are owed. This will be calculated from the day after the due date or the date of submission (whichever is later) until the day HMRC pays you the repayment VAT amount due to you in full. The repayment interest will be calculated as the Bank of England base rate minus 1%, with the minimum rate of repayment interest always being 0.5%, even if the calculation results in a lower percentage.