For VAT periods starting from 1 January 2023, the standard surcharge will be replaced by new penalty measures. In addition, there will be changes in the calculation of VAT interest.
Who is affected by the new penalties?
The change will impact anyone submitting VAT returns for accounting periods beginning on or after 1 January 2023. Penalty points will also be due for VAT returns received late with zero amounts or refunds, up to and including financial penalties.
The sanctions at a glance
- Penalties for late submission are calculated according to a point system.
- One penalty point is awarded for each VAT return submitted late.
- A penalty of £200 is payable for one penalty point, plus a further £200 for each additional late submission.
- The penalty point threshold for late filing depends on which annual cycle is filed.
|How is it submitted?||Penalty points threshold||Compliance period|
How can the number of penalty points be reset to zero?
Tax returns must be filed by the due date, depending on which annual cycle is filed. Ensure that HMRC has received all outstanding tax returns for the last 24 months. Failure to pay VAT on time will be sanctioned according to the period of arrears:
Up to 15 days overdue: If the VAT due is paid in full or a payment plan is agreed on or between the 1st and 15th day, no penalty will be charged.
Between 16 and 30 days overdue: penalty payment of 2% on the VAT due on the 15th day if paid between the 16th and 30th.
31 days or more overdue: The first penalty of 2% of the VAT is due on the 15th day, plus 2% of the tax outstanding on the 30th day. A second penalty is calculated at a daily rate of 4% every year for the duration of the due amount. This is charged when the outstanding amount has been paid in full or a payment plan has been agreed upon.
Calculation of default interest
From 1 January 2023, HMRC will charge interest on late payments from the date the payment is overdue until the date the payment is made in full. Interest on late payments will be charged at the Bank of England base rate plus 2.5%.
Introduction of interest on repayments
The repayment surcharge will be abolished from 1 January 2023. HMRC will pay repayment interest on the VAT due for accounting periods beginning on or after 1 January 2023. This will be calculated from the day after the due date or filing date (whichever is later), and until the date, HMRC repays the VAT amount due in full. Repayment interest will be charged at the Bank of England base rate of less than 1%. The minimum rate of repayment interest will always be 0.5%, even if the calculation of repayment interest results in a lower percentage.
During a transitional period from 1 January 2023 to 31 December 2023, no late payment penalties will be levied if the total amount is paid within 30 days of the due date. Complete application of the fines will begin on 1 January 2024.