New VAT penalties for periods starting on or after 1 January 2023.
HMRC have introduced new penalties for the late filing and payment of VAT for 2023. Previously, if you missed filing you would pay a percentage of the VAT owing, and this percentage increased with each time you failed to file a return on time.
The new system operates on a points basis and applies even if your returns are nil or you are due a VAT refund.
How does the points system work?
For every VAT return that you submit late, you’ll receive a late filing penalty point until you reach the late filing penalty point threshold.
When you reach the threshold, you’ll receive a £200 penalty automatically. You’ll also receive a further £200 penalty for each subsequent late submission while you’re at the threshold.
If you account for VAT quarterly, your points threshold is 4, annually it is 2 and monthly it is 5.
For example, a business has submitted three quarterly VAT returns late already, once they submit their fourth late return they will hit their threshold and be given an automatic £200 penalty. If they file their 5th VAT return on time, they do not receive another penalty, but remain at the 4 point threshold so that if the sixth return is also submitted late they will get another £200 automatic penalty.
What is not covered by the new filing penalties
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.
Charges for late payment
On top of the the late filing penalties, you will also be charged late payment penalties on any late paid VAT. They are calculated as follows:
Payment up to 15 days overdue | First late penalty None | Second late penalty None |
|---|---|---|
| Payment between 16 and 30 days overdue | Calculated at 2% on the VAT you owe at day 15. | None |
| Payment 31 days or more overdue | Calculated at: • 2% of what was outstanding at day 15 • plus 2% of what is still outstanding at day 30 | Calculated at •a daily rate of 4% per year on the outstanding balance •charged everyday from day 31 until the outstanding balance is paid in full |
As well as penalties, interest is also charged on any overdue amounts. The interest charges will apply from the first day that the VAT payment is overdue and will continue to be charged until the outstanding VAT is paid in full.
What if you can’t pay your VAT?
If you can’t pay your VAT by the due date you should contact HMRC as soon as possible, they are far more lenient and helpful than when the deadline has already passed. You can ask for a time to pay payment plan and they may reduce, or totally remove, the penalties applied to you.
More details can be found on the HMRC website here.