Changes to VAT penalties and interest

For any VAT return periods on or after 1 January 2023, there are new penalties for late submission of VAT returns and late payment of VAT.

The default surcharge which has been around since 1990 has now been replaced with a points-based system, and late payment will result in interest being charged to bring VAT in line with other taxes.

The VAT payment deadline of one month and 7 days following the VAT return period end remains unchanged.

Interest

Interest will now be charged at 2.5% above the Bank of England base rate on any VAT liabilities which are not paid by the payment deadline.

HMRC will now pay interest at 1% below the Bank of England base rate on any repayments due to taxpayers from the payment deadline until the repayment has been made.

Late return submission

Late submission of a VAT return will result in receiving 1 penalty point from HMRC.

For every subsequent VAT return submitted late, a further penalty point will be received.

When a total of 4 penalty points have been received, HMRC will issue a £200 fixed penalty.

Once 4 penalty points have been received, HMRC will continue to issue a further £200 fixed penalty for every subsequent late VAT return submission.

The only way to reset the points back to zero is to submit a total of 4 VAT returns on time.

Late payment penalties

VAT liabilities, which are either paid or a Time To Pay (TTP) arrangement has been agreed with HMRC up to 15 days late (ie one month and 22 days after the VAT period end), will not receive a late payment penalty.

VAT liabilities, which are either paid or a TTP arrangement has been agreed with HMRC between 16 and 30 days late will receive a late payment penalty of 2% of the outstanding VAT liability as at day 15.

VAT liabilities which are either paid or a TTP arrangement has been agreed with HMRC over 31 days late will receive a late payment penalty of 2% of the outstanding VAT liability as at day 15 plus 2% of the outstanding VAT liability as at day 30. Also, a further 4% penalty will be charged daily from day 31 on the outstanding balance until it has been paid.

For further details, please visit www.gov.uk/government/collections/vat-penalties-and-interest.

If you have any questions or concerns, please get in touch.