Be prepared for changes to VAT penalties and VAT interest charges
Changes to charges and penalties applied to late submission of VAT returns will kick in from January next year. For the VAT period starting on or after 1 January 2023, new penalties will 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 financial penalties.
What happens if I submit my VAT return late?
A new points-based system is set to be introduced for late submission penalties. For each late return, you will receive one 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.
How am I affected if I pay late?
Up to 15 days overdue – No penalty charge if you pay in full or agree to a payment plan on or between days one and 15.
Charge at 16 and 30 days overdue – The first penalty charge will be at two per cent on what you owe on day 15, if you pay in full, or agree to a payment plan on or between days 16 and 30.
Overdue by 31 days or more – On top of what you owe on day 15, there will be a further two per cent added to what you owe on day 30. In addition, you will incur a second penalty at a daily rate of four per cent per year for the duration of the outstanding balance.
HM Revenue & Customs (HMRC) is giving people some breathing space to familiarise themselves with the new arrangement and 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.
How much interest will I pay on late payments?
From next January, HMRC will charge interest on late payments from the day your payment is overdue until it is paid off in full. The rate is the Bank of England base rate plus an additional 2.5 per cent. More detailed guidance on VAT penalties is set to be published in December.