In the new year businesses and individuals who submit VAT returns late or miss their payment deadlines could be fined £200.
HMRC is introducing a points-based penalty system that will affect all UK VAT-registered businesses (both companies and individuals) and will apply for accounting periods starting on or after 1 January 2023.
The new regime - which relates to ALL VAT submissions irrespective of the VAT balance due - will replace the current default surcharge used for many years to penalise businesses for late VAT returns.
There will also be changes to how interest on the late payment of VAT is calculated, both with regard to VAT due to HMRC as well as repayments from them.
Submission of late VAT return
For every submission deadline missed a point will be incurred. Once a points threshold is reached, a £200 penalty will be incurred with a further £200 penalty for each subsequent late submission.
The penalty point thresholds vary according to how frequently you submit VAT returns:
VAT Return Submission Type
Penalty Points Threshold
Period of Compliance
Monthly
5
6 months
Quarterly
4
12 months
Annually
2
24 months
Points will reset to zero if you submit your returns on or before the due date for your period of compliance and make sure all outstanding returns due for the previous two years have been submitted.
Late payment of VAT penalties
Up to 15 days overdue
No penalty
16 - 30 days overdue
2% on VAT owed at day 15
31 days overdue
2% on VAT owed at day 15 plus 2% on VAT owed at day 30. A second penalty calculated at a daily rate of 4% per year for the duration of the outstanding balance
The longer the VAT payment is outstanding the more the penalty rate increases.
There will, however, be no first late payment penalty for the first year 1 January 2023 – 31 December 2023, if you have paid in full within 30 days of payment due date. This is to allow familiarisation of the changes.
Late payment interest
Interest will be charged from the day payment is overdue, to the day payment is made, at an interest rate determined by the Bank of England base rate plus 2.5%.
Repayment interest
Repayment interest will be calculated from the due date or date of submission of the VAT return, until HMRC pays the VAT amount due in full. The interest rate will be determined by the Bank of England base rate minus 1% (to a minimum of 0.5%).
