For VAT periods starting on or after 1 January 2023, HMRC have introduced new penalties for VAT returns that are submitted late and VAT which is paid late. The way interest is charged has also changed.
This aims to be a much fairer system, which will penalise those who are persistently late filing and paying, rather than those who make the occasional one-off mistake.
Penalty points and penalties if you submit your VAT return late
You must send your VAT return (including nil returns and repayment returns) by the deadline.
From 1 January 2023, for each return you submit late, you will receive a penalty point until you reach the penalty point threshold.
When you reach the penalty point threshold, you will receive a £200 penalty. You will also receive a further £200 penalty for each subsequent late return while you’re at the threshold.
The penalty point threshold is set by your VAT period. The threshold is the maximum points you can receive:
| VAT period | Penalty points threshold |
| Quarterly | 4 |
| Monthly | 5 |
| Annually | 2 |
Therefore, a taxpayer submitting quarterly returns would not incur a penalty for its first three late returns. If the next return is late, a fourth penalty point is incurred and the first £200 penalty will apply. If the following quarter’s return is filed on time, the taxpayer would stay at the threshold of 4 penalty points but do not get a £200 penalty.
If the taxpayer submits their next return late, as they are still at the penalty point threshold of 4 points, they would receive another £200 penalty.
If you receive a late submission penalty point or a £200 penalty, HMRC will tell you in a penalty decision letter. Appeals can be made against the penalties and the penalty may be cancelled or amended if you have a reasonable excuse.
There are further considerations in relation changes to accounting periods etc and penalty points, which can be found at https://www.gov.uk/guidance/penalty-points-and-penalties-if-you-submit-your-vat-return-late
To return to nil points once reaching the points threshold
If you have reached the threshold for late submission penalty points, you will need to take action to avoid further £200 penalties. To do so you must complete a period of compliance, submitting all returns by the deadline, and submit all outstanding returns for the previous 24 months.
A period of compliance is when you submit all of your returns on time as follows:
| VAT period | Period of compliance | Returns to make |
| Quarterly | 12 months | 4 |
| Monthly | 6 months | 6 |
| Annually | 24 months | 2 |
Late payment
HMRC will charge late payment interest on the amount outstanding from the first day your payment is overdue until it is paid in full. If the payment is more than 15 days late, you will also be asked to pay a late payment penalty.
| First late payment penalty | Second late payment penalty | |
| Payment up to 15 | None | None |
| days overdue | ||
| Payment between 16 | Calculated at 2% on | None |
| and 30 days overdue | the VAT you owe at day 15 | |
| Payment 31 days or | Calculated at 2% of what | Calculated at a daily rate of 4% |
| more overdue | was outstanding at day 15 | per year on the outstanding |
| balance |
To avoid further late payment penalties
| Action | Timescale | |
| Payment up to 15 | Pay in full or | On or between days 1 and 15 |
| days overdue | Ask for Time to Pay | |
| Payment between | To avoid higher penalties | On or up to day 30 |
| 16 and 30 days | that will apply from day 31 | |
| overdue | you should: Pay in full or | |
| Ask for Time to Pay | ||
| Payment 31 days or | To stop your second late | On or after day 31 |
| more overdue | payment penalty and | |
| interest increasing you | ||
| should: Pay in full or | ||
| Ask for Time to Pay |
There will be a “period of familiarisation” where HMRC will not charge a first late payment penalty until after 31 December 2023. This is provided that, within 30 days of your payment due date, you either pay in full or make a Time to Pay arrangement.
If you are experiencing difficulties making payments, you should contact HMRC as early as possible, as this may stop more penalty charges and interest being added to VAT you owe, and arrangements may be made to set up a flexible payment plan.
A reminder to our clients for whom we deal with their VAT compliance: It is important that we continue to receive the relevant information in a timely manner, to enable us to ensure your returns are filed on time and you remain compliant.
As always, please don’t hesitate to get in touch if you would like to discuss any of the above changes with us.
Paul Buckley
paul.buckley@waltonsba.co.uk
Dan Hall
dan.hall@waltonsba.co.uk
