There has recently been a change to VAT penalties and interest charges that will apply to late submission of VAT returns and late payments.
For VAT periods starting on or after 1 January 2023, the default surcharge has been replaced by new penalties if a VAT return is submitted late or VAT is paid late.
Any nil or repayment VAT returns received late will also be subject to late submission penalty points and financial penalties. This differs to the default surcharge regime where no penalty was issued in these situations.
Submitting a late VAT return
Businesses will receive one late submission penalty point for each VAT return submitted late. Once a penalty threshold is reached, there will be a standard £200 penalty and a further £200 penalty for each subsequent late submission. The late submission penalty points threshold will vary according to submission frequency.
Penalty points will expire automatically if the business is not at the threshold. If the threshold is reached, the points can be reset to zero if all returns are submitted on time in the appropriate period of compliance (varies subject to filing frequency) and any outstanding returns in the previous 24 months have been received by HMRC.
Not paying VAT on time
In addition to the late filing penalties, there are late payment penalties. These are:
- On or between days 1 and 15 – no penalty will be charged if the VAT owed is paid in full or a payment plan is agreed
- On or between days 16 and 30 – the first penalty will be calculated at 2% on the VAT owed at day 15 (if the outstanding amount is paid in full or a payment plan is agreed on or between days 16 and 30)
- At 31 days or more overdue – the first penalty will be calculated at 2% on the VAT owed at day 15 plus 2% on the VAT owed at day 30. A second penalty will be 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.
To allow businesses to familiarise themselves with the changes, HMRC will not be charging businesses the first late payment penalty until after 31 December 2023 as long as payment is made in full (or a time to pay agreed) within 30 days of the payment due date.
Late payment interest charges
HMRC will also charge late payment interest from 1 January 2023. This will be charged from the day a payment is overdue to the day a payment is made in full. This will be calculated as the Bank of England base rate plus 2.5%.
For further information, please contact Alison Buckley to the right of this page.