From 1st January 2023, HMRC replaced the default surcharge for late filing of VAT returns for a new penalty regime. For many, this will affect them for the first time when submitting their VAT return for the quarter to March 23.
You will receive a penalty point every time you submit a late VAT return. This includes nil or repayment returns. When you reach the threshold, a penalty will be charged. The threshold for penalties depends on the frequency of VAT returns:
Annual VAT returns – 2 points
Quarterly VAT returns – 4 points
Monthly VAT returns – 5 points
Once the threshold has been reached you will receive a £200 penalty. For every late submission after this return then a further £200 penalty will be received.
It is possible for you to reset your penalty points to zero if you submit all your VAT returns on time for a specified period. This again varies depending on the frequency of the VAT returns:
Annual VAT returns – 24 months
Quarterly VAT returns – 12 months
Monthly VAT returns – 6 months
The penalties for late payment are also changing. The amount you will have to pay for the late payment of VAT will now be dependent on how late the payment is, therefore, the sooner you pay, the lower the penalty rate will be.
Up to 15 days overdue:
You will not be charged a penalty if the VAT liability is paid in full or a payment plan is agreed between day 1 and day 15.
Between 16 and 30 days overdue:
You will receive a first penalty calculated at 2% of the VAT liability you owe at day 15 if the liability is paid in full or a payment plan is agreed between day 16 and day 30.
31 days or more overdue:
You will receive a first penalty calculated at 2% of the VAT liability you owe at day 15 plus 2% of the VAT liability you owe at day 30. You will then receive a second penalty calculated at a daily rate of 4% per year for the duration of the outstanding balance. This is calculated and applied when the balance has been paid in full or a payment plan has been agreed.
HMRC have announced a period of familiarisation to give you time to adjust to these changes and will not be charging a first late payment penalty for the first year from 1st January 2023 to 31st December 2023, if the VAT liability is paid in full within 30 days of the payment due date. However, late payment interest will be charged from the day your payment is due until the day your liability is paid in full. This will be calculated at the Bank of England base rate plus 2.5%.
For further information on VAT penalties and interest charges, please click on the following link.