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VAT Late Payment Form With Overdue Stamped In Red Across The Front

Prepare for upcoming changes to HMRC’s VAT late payment penalty and VAT interest charges

As of November 2022, all VAT-registered businesses were required to submit their returns via Making Tax Digital software. In line with this, from 1st January 2023, HMRC is introducing a new VAT penalty and interest charge scheme where submissions are filed late, or payments are not paid on time.

When does the new late payment penalty come into force?

The new penalties come into force for all returns for period that begin on or after 1st January 2023.

Will there be an introductory period?

Yes, there will be a familiarisation period for businesses to get to grip with the new system. If you miss a filing deadline but pay the full amount due within 30 days of the payment due date, a first late payment penalty will not be levied within the first year of 1st January 2023 to 31st December 2023.

What happens if my business does not submit returns on time or does not make required payments on time?

If your business falls foul of the required timescales for submissions or payments, it will go through the new VAT late payment penalty system rather than the current default surcharge scheme. The penalty system will apply penalty points to any VAT-registered business that submits late returns or late VAT payments.

If you are late you can receive:

  • A penalty for a late submission
  • A penalty for a late payment
  • Interest on amounts paid late

New VAT penalties for late submissions

Businesses will be charged one penalty point for each late return. Once a set number of penalty points have been accumulated, a penalty of £200 will be charged for the next late return You will also be charged an additional £200 penalty for each subsequent late submission. Please note this applies to all returns even if you are due a VAT refund.

The points threshold, and period of compliance, will depend upon how often you submit your returns.

Submission frequency Penalty points threshold Period of compliance
Annually 2 24 months
Quarterly 4 12 months
Monthly 5 6 months

If you submit your returns on or before the due date for your period of compliance and ensure any outstanding returns for the previous 24 months have been received by HMRC, you will be able to reset your points to Zero.

Please note that if you change the regularity that you submit your returns this will alter the penalty points system and you should take advice before doing so.

VAT Returns not affected

The late submission penalty rules do not apply to your:

  • first VAT return if you’re newly VAT registered
  • final VAT return after you cancel your VAT registration
  • one-off returns that cover a period other than a month, quarter or year

For example, you might make a one-off return covering a four-month period because you changed from submitting quarterly to annually.

New VAT late payment interest charges

The amount of the penalty for late VAT payments will depend upon how many days overdue your payment is. The more days you are overdue the greater the penalty.

Charges are as follows:

  • Up to 15 days overdue

No penalty is charged for payments made within 15 days of the due date.

  • Between 16 and 30 days overdue

For overdue payments made between day 15 and day 30, a penalty of 2% on the VAT you owe at day 15 will be charged.

  • 31 days or more overdue

For overdue payments outstanding after 30 days, a penalty of 2% on the VAT you owed at day 15 plus 2% of the VAT owed at day 30 will be charged.

A second penalty will also be charged at a daily rate of 4% per year for the duration of the outstanding balance.

Time To Pay Arrangements

If for any reason you find it difficult to make payments on time, you may apply to HMRC for a Time To Pay Arrangement. If an arrangement is successful, this will stop any penalties.

Interest on unpaid amounts

Interest will be charged at 2% above the bank of England Base rate from the date the amount is due until the full liability is paid.

What to do next

If you are unsure about the new VAT late payment regulations or are someone who leaves things until the last minute and then misses deadlines, now is the time to get your finances sorted to ensure you don’t fall foul of the system, and of course, this makes good business sense anyway.

If you are in a muddle and need to get things sorted, get help from a professional such as Maynard Johns Chartered Accountants.

HMRC also have a series of live and recorded webinars to help you:

  • An overview of the new VAT late submission, late payment penalties and interest changes
    In this live webinar we explain HMRC’s new VAT penalties and VAT interest changes. These will replace the VAT default surcharge for VAT accounting periods starting on or after 1 January 2023.
    Register here
  • Changes to the VAT652 – Error Correction Notice form
    Our live webinar will take you through the VAT652 Error Correction Notice online form, highlighting its advantages over the downloadable version.
    Register here
  • Using the VAT484 form to report changes
    This recorded webinar explains how to complete the form VAT484 to report any changes to your VAT-registered business. It includes changes to:

      • changing business contact details
      • VAT return dates
      • business partners and cancelling the registration

    Register here


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