A new late filing and payment penalty system for VAT will be introduced for VAT periods starting on or after 1 January 2023.

This will replace the existing late submission and late payment penalty regime and see the accrual of points that lead to penalties for non-compliance.

The new penalties will depend on how frequently you are required to submit VAT information. For example:

• For annual submissions, accruing two points will result in a penalty.
• In the case of quarterly reports, four points will result in a penalty
• If you are required to make more regular monthly submissions, five penalty points will end in a fine.

The fine for each of these submission penalty thresholds is a £200 penalty. However, every late submission after this initial fine will result in an additional penalty being added.

Although points are accrued over time, they will expire when a taxpayer demonstrates ongoing compliance with the rules.

VAT returns must have been submitted for the previous 24 months and the business must have submitted VAT returns on time for 24 months for annual VAT returns, 12 months for quarterly and VAT returns and 6 months for monthly VAT returns.

Although you won’t face automatic fines for late submissions under this system the potential for a larger overall fine for extended or regular periods of non-compliance is greater.

Late payment penalties for VAT

Under this new system, you will not receive a penalty if you pay the VAT you owe in full or agree on a payment plan on or between days one and 15.

If payment continues to be due from day 16 to day 30 you will receive a first penalty calculated at two per cent on the VAT, you owe on day 15.

Finally, if your VAT payment is 31 days or more overdue, then you will receive a second penalty calculated at a daily rate of four per cent per year for the duration of the outstanding balance at day 30.

The second penalty is calculated when the outstanding balance is paid in full, or a payment plan is agreed upon.

This means that late payment penalties will be charged at different rates based on when payment is received, ensuring the penalty is more proportionate to the length of time a payment is outstanding – the sooner you pay, the lower the penalty you receive.​

HMRC is also introducing a new late payment interest system. This means that you’ll be charged interest from the date your payment is overdue, until the date you pay in full. HMRC is discontinuing repayment supplements and will introduce repayment interest.

Customers who make a repayment claim will be paid repayment interest from the day after the due date, or the date of the submission (whichever is later), to the date the repayment is made.

Time to prepare

HMRC will not be charging a first late payment penalty for the first year from 1 January 2023 until 31 December 2023. However, it will be charging a second penalty for payments that are 31 days late or more.

These changes could have a significant impact if paying or filing late, so you should make sure you are compliant with current requirements and keep up to date with your VAT compliance.

If you have any concerns or need help with VAT compliance, please speak to us.