Changes to HMRC VAT Penalties and VAT Interest Charges from Jan 2023

New VAT late filing and payment penalties have been introduced by HMRC for VAT accounting periods starting on or after 1st January 2023. The changes will affect everyone submitting VAT returns irrespective of whether any VAT is due. Any NIL or repayment VAT returns received late will also be subject to late submission penalty points and financial penalties.

From January 2023 onwards, the process for late submission penalties will work on a points-based system. For each VAT return you submit late within a certain timeframe, you will receive one late submission penalty point. Once a taxpayer reaches a certain penalty threshold, 4 points for quarterly and 5 for monthly, they will get a £200 penalty. After this a further £200 penalty will be issued for each subsequent late submission.

After submitting the VAT return, if the actual VAT payment is not made on time, late payment penalties will be due. This applies even if the return was filed in time as was always the case. The amount will vary and the sooner a payment is made, the lower the penalty rate will be.

  • Late payment 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.
  • VAT payment between 16-30 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.
  • VAT payment 31 days+ overdue: A first penalty will be payable, calculated at 2% on the VAT you owe at day 15, plus 2% on the VAT you owe at day 30.

A second penalty will then become payable on the remaining tax due. This is calculated at a daily rate of 4% per year for the duration of the outstanding balance. The second penalty is voided once the outstanding balance is paid in full, or once a payment plan has been agreed.

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