New VAT penalties kick in from 1 January 2023


Starting from January 2023, HMRC will no longer give a default surcharge to late VAT payers. They will instead set up separate VAT penalties for late returns and late payment of VAT. At the same time, HMRC is introducing new measures for charging interest on late-paid VAT.

The new points-based system for late submissions will be more forgiving for the occasional oversight, but it will still penalise those who repeatedly fail to comply with the deadline.  The system will operate in a similar way to the penalty points scheme for motoring offences.  And like that scheme, the points expire after a period of time.

If you submit your return late, you could face a penalty in the form of penalty points and a fine in the form of £200.

If You Submit A Late VAT Return

Late submission penalties will work on a “points” system.

Each VAT Return you submit late is subject to a late submission penalty point.

Once you exceed the penalty threshold, you will get a £200 fine, and then another £200 fine for each subsequent late submission.

The late submission penalty points threshold will vary according to your submission frequency

Submission frequencyPenalty points thresholdPeriod of compliance
Annually224 months
Quarterly412 months
Monthly56 months

If you do the following every time, you can reset your points back to zero:

-Submit your returns on or before the due date. (based on your submission frequency)

-make sure all outstanding returns due for the previous 24 months have been received by HMRC

If You Don’t Pay VAT On Time

The sooner you submit your payment, the lower the penalty rate will be.

1-15 days overdue

No charge penalty if you pay the VAT or agree to a plan

16-30 days overdue

You will incur the first penalty, 2% on the VAT you owe on day 15 plus 2% on Vat you owe on day 30.

Familiarisation period 2023

HMRC will not be charging for late payment penalties for the first year January 2023 to 31st December 2023, if you pay within 30 days of your late payment due date.

How will late payment interest be calculated?

From the 1st of January 2023, HMRC will charge any late payment interest from the day it was overdue until your payment is made in full.

Late payment interest is calculated as the bank of england base rate + 2.5%

Introducing Repayment Interest

The Refund Supplement will be discontinued as of January 1, 2023.

For accounting periods beginning on or after January 1, 2023, HMRC will pay you Interest refund on any VAT payable to you.

This amount will be calculated from the day after the due date or the date of submission (whichever is later) and until the date HMRC pays you the full amount of VAT refund paid by you.

The repayment rate will be calculated at the Bank of England prime rate minus 1%. The minimum rate of return will always be 0.5% even if the return calculation results in a lower percentage.

Contact our friendly team if you need advice.

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