VAT Penalties are Changing

For all VAT accounting periods starting on or after 1 January 2023, the way that HMRC charges penalties and interest on late VAT payments and returns is changing.

The old default surcharge system, where a default percentage of the late VAT amount was levied on day one after the due date is being replaced with a new, points-based system.

HMRC has said that the new system will be “more lenient” for those who make the occasional slip-up but will still penalise those who fail to comply with their VAT return submission and payment obligations.

Late Submissions

For VAT return submissions, each late return submission will now attract one penalty point. Once a taxpayer reaches the threshold, they will receive a £200 penalty. They will then continue to receive a penalty point for each further late submission and be charged a further £200 for each penalty point over the threshold.

VAT Accounting Period FrequencyPenalty Points Threshold
Annually2
Quarterly4
Monthly5

Penalty points expire after 24 months if you haven’t yet reached the threshold. If a taxpayer reaches the threshold, then they can remove points by completing a “period of compliance” (submitting all returns by the deadline for a certain period of time) and submitting all outstanding returns for the past 24 months.

Late Payments – Penalties

Late VAT payments will now not attract a percentage surcharge if they are paid (or a Time to Pay arrangement is set up) within 15 days of the deadline. There are increasing penalties for repeat late payments of your VAT bill.

The penalties are as follows:

 First Late Payment PenaltySecond Late Payment Penalty
Payment up to 15 days overdueNoneNone
Payment between 16 and 20 days overdue2% of VAT owed on day 15None
Payment 31 days or more overdue2% of VAT owed on day 15 plus 2% of VAT still outstanding on day 30Daily rate of 4% per year on the outstanding balance charged from day 31 until the balance is paid in full

This means that a taxpayer with a late VAT payment that isn’t paid until after day 31 will receive a first and second late payment penalty.

Late Payments – Interest

HMRC will also charge interest on all overdue VAT payments and penalties at 2.5% plus the Bank of England base rate. Interest will be charged on the outstanding amount until it is paid in full.

Talking Numbers can help you to get on top of your VAT responsibilities and make sure you submit and pay your VAT on time. Get in touch today for a free, no-obligation consultation.

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