New VAT Penalties from 1st January 2023
HMRC have introduced a new VAT penalty system, which will be applicable to all VAT returns with an accounting period starting on or after 1st January 2023.
The VAT default surcharge is being replaced by new penalties for returns that are submitted late and for late payments. The way interest is charged is also changing.
As from 1st January 2023 late submission penalties will work on a points based system and for each return you submit late you will receive a penalty point. Once you reach the penalty point threshold you will receive a £200 penalty and a further £200 penalty for each subsequent late submission while you are at the threshold. The threshold is the maximum number of points you can receive as follows:
|
Accounting period |
Penalty Points Threshold |
Period of Compliance |
|
Annually |
2 |
24 months |
|
Quarterly |
4 |
12 months |
|
Monthly |
5 |
6 months |
Example: Quarterly returns
A company submits their VAT Return quarterly - this means their penalty point threshold is 4. They already have 3 penalty points because they submitted 3 previous returns late.
They submit their next return late and get a fourth penalty point. Because they’ve reached the penalty point threshold, they receive a £200 penalty.
The company submits their next return on time. They stay at the threshold of 4 penalty points but do not get a £200 penalty.
The company submits their next return late. As they’re still at the penalty point threshold of 4 points, they receive another £200 penalty.
Removal of points
As long as the points total are under the threshold, each individual point will automatically expire after 24 months. However, if they are at the threshold the only way to remove them are to
meet the following two conditions:
1. Period of compliance – VAT returns are submitted on or before the due date for the period of time based on their submission frequency i.e. 12 months for quarterly
submissions
2. All VAT returns that were due within the previous 24 months have been received by HMRC
Late payment penalties
Late payment penalties will be charged at different rates based on when the payment is received as follows:
|
|
Days after deadline |
Customer action |
Penalties |
|
0 -30 |
Pay in full or arrange a time to pay plan on or between days 1-30 |
No late penalty charged |
|
|
First Penalty |
31 plus |
Pay in full or arrange a time to pay plan on or after day 31 |
First penalty calculated at 2% of what is outstanding at day 15, plus 2% of what is outstanding at day 30 |
|
Second Penalty |
Until you pay in full or arrange a time to pay plan |
A second penalty is calculated at a daily rate of 4% per year for the duration of the outstanding balance. It will be calculated when the outstanding balance is paid. |
Late payment interest
Interest will be charged on late payments from the day the payment is overdue until the day it is paid in full. Late payment interest will also apply to late submission and late payment penalties if they are paid after 30 days.
Interest is calculated at a rate of 2.5% plus the Bank of England base rate which is currently 4.5% - therefore total late payment interest rate is currently 7%.
Repayment interest rate
HMRC will pay you interest on any VAT repayments and is calculated from the day after the due date or the date of submission (whichever is later), until the date a repayment has been issued. Interest is calculated at the Bank of England base rate which is currently 4.5% - minus 1% - therefore total repayment interest rate is currently 3.5%
IMPORTANT – Under the new rules all VAT customers can receive a late submission penalty point and/or a financial penalty, even if they submit a late repayment or nil return!
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