VAT penalty changes for 2023
Posted on 19th January 2023
For VAT returns due from this month the VAT default surcharge will be replaced with new penalties for late VAT returns and payments.
You’ll receive penalty points and charges if you submit your VAT return late, including nil payment or repayment returns. You will also be charged late payment interest and penalties on overdue payments.
What are the late VAT submission penalties?
Your accounting period defines when your VAT return to HMRC is due, and this is often quarterly. The new approach is based on penalty points for late submissions in each accounting period.
When you reach the penalty point threshold, you will pay a £200 penalty and a further £200 penalty for any further late submissions.
The maximum penalty point threshold is based on your accounting period:
|
Accounting period |
Penalty points threshold |
|
Annually |
2 |
|
Quarterly |
4 |
|
Monthly |
5 |
Example:
From now on, if you submit your VAT return quarterly, your penalty point threshold will be 4 points. If three of your returns are late, you will have 3 points. If your next return is also late, you will receive your fourth penalty point and must pay £200.
Your next return is on time, so you stay at 4 penalty points but you won’t pay another £200 penalty. If another VAT return is late, you will pay a further £200 although your penalty points won’t increase.
Non-standard accounting period
If you have agreed with HMRC to use a non-standard accounting period, the rules are different:
|
Accounting period |
Penalty points threshold |
Rules that apply |
|
Over 20 weeks |
2 |
Annually |
|
Over 8 weeks and no more than 20 weeks |
4 |
Quarterly |
|
8 weeks or less |
5 |
Monthly |
If you change how often you submit returns, you will need to agree with HMRC how your threshold and penalty points will be dealt with and how any existing points will be handled. You won’t be able to appeal any adjustments made to your penalty points.
If you change from a non-standard accounting period to a standard period, your points won’t change.
How penalty points are removed
If you don’t reach the penalty points threshold for your accounting period, any points you have will be removed automatically. This will depend on when your returns were due but will normally take around 24 months.
If you have reached the penalty points threshold for your accounting period, they can only be removed by submitting all your returns by the deadlines for a period of compliance and all outstanding returns for the previous 24 months.
Taking over a business
If you take over a VAT-registered business as a ‘going concern’ penalty points won’t be transferred to your VAT registration number or when the VAT registration number is transferred to you.
When the penalty rules don’t apply
These rules won’t apply if:
you’re newly VAT registered and making your first VAT return
you’re making a one-off return that covers a period other than a month, quarter or year
you’re submitting a final VAT return after you have cancelled your VAT registration.
Interest on late VAT payments
If your VAT payments are late, you’ll also pay interest on the amount outstanding. This will be due from the first day your payment is overdue until it’s paid in full. The interest you pay is the Bank of England base rate plus 2.5%.
If your payment is more than 15 days late, you will also pay a 2% late payment penalty on the overdue amount including interest. Further penalties apply from day 31 which are 2% of the amount outstanding on day 15, 2% of the amount outstanding on day 30, and a daily rate of 4% per year on the amount outstanding until the balance is paid.
To give people time to understand the changes, the first late payment penalty won’t be charged until after 31 December 2023 as long as you pay the overdue amount in full within 30 days of the due date or you make a Time to Pay arrangement.
Your VAT online account will tell you when you are being charged for late payments.
Appeals
HMRC will send you a penalty decision letter when you receive a penalty point or a £200 penalty. The letter will include an appeal form or you can appeal using your Government Gateway account.
You can ask HMRC to review their position if you have a reasonable excuse for a late submission. This might include a bereavement, illness, technical issues, problems with HMRC’s online services, accidents or incidents that prevented you from completing your return such as a fire or flood, misunderstandings, or a failure by someone you asked to act on your behalf.
If your appeal is accepted you will have to make your VAT payment as soon as the cause of the delay is resolved.
Please get in touch if you would like help to complete and submit your VAT returns on time to avoid paying penalties and interest.
Tagged as: VAT
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