The VAT penalty regime for late returns and late payments has always been tied together which meant the surcharge amounts would rise significantly and very quickly.
From 1st January 2023 – HMRC have changed the penalty regime to separate the 2 events completely.
Late Returns
If you submit your VAT return late
Late submission penalties will work on a points-based system.
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.
The late submission penalty points threshold will vary according to your submission frequency.
| Submission frequency | Penalty points threshold | Period of compliance |
|---|---|---|
| Annually | 2 | 24 months |
| Quarterly | 4 | 12 months |
| Monthly | 5 | 6 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
Late Payments
If you do not pay your VAT on time
For late payment penalties, the sooner you pay the lower the penalty rate will be.
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.
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.
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.
You 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.
This regime is effective from periods starting on or after 1st January 2023
If your return is nil or a repayment which are recieved after the filing deadline they are still subject to the late submission penalty points
There is a period of familiarisation which will run from 1st January 2023 to 31st December 2023 which there will be no late payment penalty as long the full amount has been paid within 30 days of your payment due date.
HMRC are also bringing in repayment interest for any returns which end up as a refund – The rate is being set at Bank of England rate minus 1% with a minimum percentage of 0.5% repayment interest