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New VAT filing penalty regime – from January 2023
For VAT periods starting on or after 01/01/23, the default surcharge will be replaced by new penalties.
This will affect you, if you submit or pay VAT returns late.
This change will also affect how VAT interest is calculated.
Who is affected
The changes will affect everyone submitting VAT Returns for accounting periods starting on or after 01/01/23.
Nil or repayment VAT returns received late will also receive late submission penalty points and financial penalties, unlike at present. It is moving to a system similar to the UK Driving licence points.
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 VAT return 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
For late payment penalties, the sooner you pay the lower the penalty rate will be.
Up to 15 days overdue
No penalty if you pay the VAT you owe in full or agree a payment plan on or between 1-15 days.
Between 16 and 30 days overdue
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 16 – 30 days.
31 days or more overdue
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.
HMRC will not be charging a first late payment penalty for the first year until 31/12/23, if you pay in full within 30 days of your payment due date.
Late Payment Interest
HMRC will charge late payment interest from the day your payment is overdue to the day your payment is made in full, at the Bank of England base rate plus 2.5%.
HMRC will pay repayment interest on any VAT you are owed, from the latter of due or submission date, until HMRC repays the VAT amount due to you in full. This will be at the Bank of England base rate minus 1%., but no less than 0.5% regardless of future base rates.
It is important to ensure that your VAT returns are prepared, filed and paid on time to avoid these new penalty and interest regimes. If you need help with Making Tax Digital or filing your VAT returns then please contact us.