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Upcoming Changes To VAT Penalties & Interest Charges From 1 January 2023

For the VAT period starting on or after 1 January 2023, HMRC are introducing new penalties to replace the default surcharge for returns submitted or paid late.

Any VAT returns received late will also be subject to late submission penalty points and additional financial penalties.

What happens if I submit my VAT return late?

A new points-based system will be introduced for late submission penalties. For each late return, you will receive one penalty point and once a penalty threshold is reached, you will receive a £200 penalty and a further £200 penalty 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

You will be able to reset your points back to zero if you:

  • submit your returns on or before the due date for your period of compliance — this will be based on your submission frequency
  • make sure all outstanding returns due for the previous 24 months have been received by HMRC.

What are the charges if I don’t pay my VAT on time?

For late payment penalties, the sooner you pay the lower the penalty rate will be.

Time OverduePenalty Rate
Up to 15 daysNo penalty if the VAT owed is paid in full or a payment plan agreed on or between days 1 and 15
16 - 30 daysFirst penalty calculated at 2% on the VAT owed at day 15 if VAT is paid in full or a payment plan agreed on or between days 16 and 30
31 days or moreFirst penalty calculated at 2% on the VAT owed at day 15, plus 2% on the VAT owed at day 30

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

How much interest will I pay on late payments?

From 1 January 2023, HMRC will charge late payment interest from the day your payment is overdue to the day your payment is made in full.

Late payment interest is calculated as the Bank of England base rate plus 2.5%.

To give taxpayers 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 you pay in full within 30 days of your payment due date.

More detailed guidance about the changes to VAT late submission penalties, late payment penalties and VAT interest charges will be published in December 2022.

If you would like to discuss your circumstances, you can contact our VAT Taxperts by calling one of our offices or emailing [email protected].

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