New VAT Penalty Regime

Introduction

• This is our approach to all articles.
• For VAT accounting periods starting on or after 1 January 2023, late submission penalties apply if you submit your VAT Return late.
• This includes nil or repayment returns.
• The VAT default surcharge is being replaced by new penalties for returns that are submitted late and VAT which is paid late. The way interest is charged is also changing.

How the New System Works

• You must send a VAT Return by the deadline for your accounting period.
• Your accounting period is the period for which you need to send a return to HMRC, for example, quarterly.
• Late submission penalties work on a points-based system.
• For each return you submit late, you’ll receive a penalty point until you reach the penalty point threshold.
• When you reach the threshold, you’ll receive a £200 penalty. You’ll also receive a further £200 penalty for each subsequent late submission while you’re at the threshold.

Penalty Point Thresholds

• The penalty point threshold is set by your accounting period.
• The threshold is the maximum points you can receive, as follows:
  • Annually – 2 points
  • Quarterly – 4 points
  • Monthly – 5 points

Example

• A company submits their VAT Return quarterly.
• This means their penalty point threshold is 4.
• They already have 3 penalty points because they submitted 3 previous returns late.
• They submit their next return late and get a fourth penalty point.
• Because they’ve reached the penalty point threshold, they receive a £200 penalty.
• The company submits their next return on time.
• They stay at threshold of 4 penalty points but do not get a £200 penalty.
• The company submits their next return late.
• As they’re still at the penalty point threshold of 4 points, they receive another £200 penalty.

Late Payment Penalties

• Late payment penalties can apply to any payments of VAT not paid in full by the relevant due date except:
  • VAT payments on account
  • instalments for the VAT Annual Accounting Scheme
• For late payment penalties, the sooner you pay the lower the penalty amount will be.
• You can propose a payment plan at any time which could mean you receive lower or no penalties.
• This can include payment due:
  • on your VAT Return
  • following an amendment to a return or correction
  • from a VAT assessment we issued when you did not submit your return
  • from a VAT assessment we issued for another reason
• From the first day your payment is overdue, until you pay in full, HMRC will charge late payment interest.
• You should contact HMRC as soon as possible if you’re having difficulty paying by the deadline for your accounting period.
• This may stop more penalty charges being added to VAT you owe.
• You can also enter into a Time to Pay Arrangement.

Useful Link(s)

• Government Guidance
• Remove Penalty Points

Frequently Asked Questions