HMRC guidance - VAT penalties

HMRC guidance for changes to VAT penalties and interest charges for everyone who submits a VAT return from 1 January 2023

The current default surcharge will be replaced by new penalties based on a points system (think driving fines!) if a VAT return is submitted late or VAT is paid late.

Any nil or refund VAT returns received late will also be subject to penalty points and financial penalties.

There will be a soft-landing for the first 12 months -HMRC will not be charging a first late payment penalty for the first year from 1 January 2023 until 31 December 2023, if paid in full within 30 days of the normal payment due date.

For each VAT return submitted late, you will receive one late submission penalty point. Once a penalty threshold is reached, there will be a standard £200 penalty and a further £200 penalty for each late submission therafter.

The late submission penalty points threshold will vary according to how often you send your return.

Penalty points threshold

Submission frequency	Penalty points threshold	Period of compliance
Annually	2	24 months
Quarterly	4	12 months
Monthly	5	6 months

How to reset the points including:

·         submit returns on or before the due date

·         all outstanding returns for the previous 24 months have been received by HMRC

The sooner the late penalty is paid the lower the rate will be.

Up to 15 days overdue

There will be no penalty if the VAT is paid in full or a payment plan is agreed on or between days 1 and 15.

Between 16 and 30 days overdue

The first penalty will be calculated at 2% on the VAT owed at day 15 if the outstanding VAT is paid in full or a payment plan is agreed on or between days 16 and 30.

31 days or more overdue

The first penalty will be calculated at 2% on the VAT owed at day 15 plus 2% on the VAT owed at day 30.

A second penalty will be at a daily rate of 4% per year for the duration of the outstanding balance - calculated when the outstanding balance is paid in full or a payment plan is agreed.

VAT interest

From 1 January 2023, HMRC will charge late payment interest from the day a payment is overdue to the day the payment is made in full.

Late payment interest is calculated as the Bank of England base rate plus 2.5%.

The VAT repayment supplement

Currently if a VAT return is submitted and HMRC owes the business, the authority has 30 calendar days to do this.

If this is not the case, the VAT repayment supplement comes into effect, and an extra 5% of the repayment amount is paid.

Under the new system, HMRC will only pay interest on the refundable amount - calculated from the day after the due date or the date of submission (whichever is later) and until the day HMRC pays in full.

Repayment interest will be calculated as the Bank of England base rate minus 1%. The minimum rate of repayment interest will be capped at a minimum of 0.5% even if the repayment interest calculation results in a lower percentage.

If you have any questions, please get in touch and I will do my very best to help!