Changes to VAT penalties and VAT interest charges

By 24/06/2022News, VAT, VAT Compliance

HMRC have confirmed that for VAT periods starting on or after 1 January 2023, the default surcharge will be replaced by new penalties if you submit VAT returns late or pay VAT late.

In addition, there will also be changes to how VAT Interest is calculated.

The changes will affect everyone submitting VAT Returns for accounting periods starting on or after 1 January 2023. Any nil or repayment VAT returns received late will also be subject to late submission penalty points and financial penalties.

What happens if you submit your VAT return late?

For each VAT Return you submit late you will receive one late submission penalty point. Once a penalty threshold is reached, you will receive a £200 penalty and a further £200 penalty for each subsequent late submission.

Details of the points system can be found here.

What happens if you do not pay your VAT on time?

In general terms, the sooner you pay the lower the penalty rate will be.

If you are up to 15 days overdue, you will not be charged a penalty if you pay the VAT you owe in full or agree a payment plan on or between days 1 and 15.

If you are between 16 and 30 days overdue, you will receive a first penalty calculated at 2% on the VAT you owe at day 15 if you pay in full or agree a payment plan on or between days 16 and 30.

If you find yourself 31 days or more overdue, you will receive a first penalty calculated at 2% on the VAT you owe at day 15 plus 2% on the VAT you owe at day 30.

According to HMRC, you will then 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.

Period of familiarisation

To give everyone 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.

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