New VAT penalties from 1 January 2023 will affect all businesses submitting VAT returns for accounting periods starting on or after 1 January 2023. The default surcharge will be replaced by new VAT penalties for late payment and late submission of returns.
The new penalty regime will apply to all VAT registered traders - including those who usually submit nil returns or repayment returns.
There will also be changes to how VAT interest is calculated.
New VAT penalties for late submission of VAT returns
Effective from 1 January 2023, late submission penalties will work on a points-based system.
For each VAT return submitted late, the business will receive one late submission penalty point. Once the penalty threshold is reached, a £200 penalty is charged, with further £200 penalties for each subsequent late submission.
The late submission penalty points threshold will vary according to the submission frequency. A business in receipt of penalty points will be able to reset its points score back to zero if it:
- submits returns on or before the due date for the “period of compliance”; this will be based on the submission frequency; and
- ensures that all outstanding returns due for the previous 24 months have been received by HMRC
The table below summarises the position:
| SUBMISSION FREQUENCY | PENALTY POINTS THRESHOLD | PERIOD OF COMPLIANCE |
| Annually | 2 | 24 months |
| Quarterly | 4 | 12 months |
| Monthly | 5 | 6 months |
New VAT penalties for late payment of VAT
Late payment penalties will operate on a sliding scale depending on when payment is actually made.
Up to 15 days overdue
Under the new regime, a business will not be charged a penalty if the VAT due is paid within 15 days of the due date, or a payment plan is agreed in that timeframe.
Between 16 and 30 days overdue
A business will receive a first penalty calculated at 2% on the VAT owed on day 15, if the VAT is paid or a payment plan agreed between days 16 and 30.
31 days or more overdue
A business will receive a first penalty calculated at 2% on the VAT owed on day 15, plus 2% on the VAT owed on day 30.
The business will receive a second penalty calculated at a daily rate of 4% per year for the duration of the outstanding balance. This is calculated when the outstanding balance is paid in full or a payment plan is agreed upon.
New VAT penalties – period of familiarisation
To give businesses time to get used to the changes, HMRC will not be charging a first late payment penalty for the first year from 1 January 2023 until 31 December 2023, if the amount due is paid in full within 30 days of the payment due date.
How late payment interest will be charged
From 1 January 2023, HMRC will charge late payment interest from the day payment is overdue to the day payment is made in full.
Late payment interest is calculated as the Bank of England base rate plus 2.5%.
Introduction of repayment interest
The repayment supplement will be withdrawn from 1 January 2023.
For accounting periods starting on or after 1 January 2023, HMRC will pay repayment interest on any VAT that is owed. This will be calculated from the day after the due date or the date of submission (whichever is later) and until the day HMRC pays the repayment VAT amount in full.
Repayment interest will be calculated as the Bank of England base rate minus 1%. The minimum rate of repayment interest will always be 0.5% even if the repayment interest calculation results in a lower percentage.
Contact us for assistance with any of the matters discussed in this article.
