HMRC have introduced changes to the way VAT registered businesses will be penalised if they don’t submit their VAT Returns and/or pay VAT liabilities owed, on time.
The new regime will kick in for accounting periods starting on or after 1 January 2023 and these changes aim to simplify and separate penalties and interest charged.
The Changes
New VAT Late Submission Penalties
The new system will introduce 2 separate penalties for late submission of a VAT Return and/or late payments of VAT due. The new system will operate on a points basis and VAT registered businesses will receive penalty points each time a Return if filed late into HMRC. Once they reach a given penalty threshold, they will receive a fixed rate penalty of £200. VAT registered businesses will subsequently receive additional £200 penalties for further late VAT Return submissions.
The penalty point threshold is set by your accounting period. The threshold is the maximum points you can receive. Below the table sets out these thresholds, dependent on how often you file VAT Returns.
| VAT Return Cycle | Penalty Threshold | Compliance Period |
| Annually | 2 Points | 24 Months |
| Quarterly | 4 Points | 12 Months |
| Monthly | 5 Points | 6 Months |
By way of example, a company submits their VAT Return quarterly, meaning their penalty point threshold is 4.
Each time the company submits their VAT Return late, they will receive a penalty point. If they submit their VAT Return late a fourth time, they will be issued with a £200 penalty.
A VAT business can have these removed when meeting certain conditions with the compliance period which is relevant the VAT Return cycle. More details on this can be found within the links below.
New VAT Late Payment Penalties
The new system also sees changes to the late payment penalties that HMRC will issue if the payment of a VAT registered business is made late. This will be based on how late payment is made to HMRC, as follow:
| First Late Payment Penalty | Second Late Payment Penalty | |
| Payment up to 15 days overdue | None | None |
| Payment between 16 and 30 days overdue | 2% on the VAT you owe at day 15 | None |
| Payment 31 days or more overdue | 2% of what VAT was outstanding at day 15, plus 2% of what was outstanding at day 30 | A daily rate of 4% per year on the outstanding balance. This is charged every day from day 31 util the balance is paid in full. |
Late payment interest is change from the first day that the payment is overdue, until the day its paid in full. This is calculated at the Bank of England base rate plus 2.5%.
More details of the changes to the late payment penalties and interest within the links below.
New Repayment Interest on VAT Repayments or Credits
The new regime surrounding repayments is that HMRC will now pay you interest on any amounts they owe a VAT registered business. This replaces the repayment supplement that was previously in place.
Repayment interest is paid at the Bank of England base rate minus 1%, with a minimum rate of 0.5%.
Further Information
If you would like to discuss how these changes in tax policy may affect you and/or your business, please contact your usual NRB advisor or our tax team.
Useful Links
Changes to Late Submissions: Penalty points and penalties if you submit your VAT Return late – GOV.UK (www.gov.uk)
Removal of Penalty Points: Remove penalty points you’ve received after submitting your VAT Return late – GOV.UK (www.gov.uk)
Changes to Late Payments: How late payment penalties work if you pay VAT late – GOV.UK (www.gov.uk)
Changes to Interest Charges: Late payment interest if you do not pay VAT or penalties on time – GOV.UK (www.gov.uk)
Changes to Repayment Interest: Repayment interest on VAT credits or overpayments – GOV.UK (www.gov.uk)
