For VAT periods starting on or after 01 January 2023
(This will only apply if you submit your returns late or pay late)
At a glance
- You will receive points if a return is late or a payment is late. This means if both are late the points will be doubled.
- The penalty for late VAT return is £200 per late return. The penalty for late payment is based on your liability and how late the payment is.
- You can now receive a penalty for late submission of a VAT return, even if nil or a repayment is due
- HMRC will pay you interest if a repayment is due
There are 3 types of fines
- Fixed penalty on late return
- Variable penalty on late payment
- Interest charged on late payment
VAT return submission – Penalty ‘points-based’ regime
For each VAT return you submit late you will receive one late submission penalty point. If you get a certain number of penalty points over a set period you will receive a £200 penalty and for every subsequent late submission.
Individual penalty points accrued will automatically expire after 24 months provided the taxpayer remains below the points threshold. After the points threshold has been reached all points will expire after the taxpayer has met their return obligations for a set period of time based on their submission frequency, known as the period of compliance.
Submission frequency | Penalty points threshold | Period of compliance |
Annually | 2 | 24 months |
Quarterly | 4 | 12 months |
Monthly | 5 | 6 months |
You will be able to reset your points back to zero if you:
- submit your returns on or before the due date for your period of compliance — this will be based on your submission frequency
- make sure all outstanding returns due for the previous 24 months have been received by HMRC
It may help to think of this like points on a driving licence, you can get up to a threshold of points before something bad happens and after a period of good behaviour, they get wiped off.
VAT payment – Penalty calculation
The new late payment penalty will consist of two separate charges.
The first charge
For late payment penalties, the sooner you pay the lower the penalty rate will be.
Up to 15 days overdue
You will not be charged a penalty if you pay the VAT you owe in full or agree a payment plan on or between days 1 and 15.
Between 16 and 30 days overdue
You will receive a first penalty calculated at 2% on the VAT you owe at day 15 if you pay in full or agree a payment plan on or between days 16 and 30.
31 days or more overdue
You will receive a first penalty calculated at 2% on the VAT you owe at day 15 plus 2% on the VAT you owe at day 30.
If you agree a payment plan but do not make a payment on time, all penalties that would have applied if the agreement wasn’t in place will become chargeable.
The second charge
A second charge will be payable from day 31. This will be calculated at a daily rate of 4% per year for the duration of the outstanding balance. This is calculated when the outstanding balance is paid in full or a payment plan is agreed.
There will be a soft-landing approach for the first year.
Interest on late payment
In addition to the late payment charges from 1 January 2023, HMRC will charge late payment interest from the day your payment is overdue to the day your payment is made in full.
Late payment interest is calculated as the Bank of England base rate plus 2.5%.
There is some good news:
Introduction of repayment interest
For accounting periods starting on or after 1 January 2023, HMRC will pay you repayment interest on any VAT that you are owed.
This will be calculated from the day after the due date or the date of submission (whichever is later) and until the day HMRC pays you the repayment VAT amount due to you in full.
Repayment interest will be calculated as the Bank of England base rate minus 1%. The minimum rate of repayment interest will always be 0.5% even if the repayment interest calculation results in a lower percentage.
