VAT Penalty Charges

For VAT periods starting on or after 1 January 2023, the default surcharge has been replaced by a new penalty system if you submit VAT returns late or pay VAT late. This new system also changes how VAT Interest is calculated.

Late submission penalties will work on a points-based system. For each VAT Return you submit late, HMRC will allocate one late submission penalty point. Points for late returns will expire after a specified period has elapsed unless you go over the penalty thresholds.

An important change is that any nil or repayment VAT returns received late will also be subject to late submission penalty points.

Once you have reached a penalty threshold, you will receive a £200 penalty, with all subsequent missed deadlines also receiving a £200 penalty.

A penalty will be charged when you reach the below thresholds;

The penalty points that you have accumulated will not automatically expire as normal once you have triggered a penalty. Instead, to reset the clock you have to meet a longer test of good compliance for a specified period, depending on your return cycle as below.

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

Interest on overdue tax will continue to be charged from the due date at Bank of England base rate plus 2.5% and will continue to accrue even where a time to pay arrangement has been agreed

To give you 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.