A new VAT penalty system has come into force

A new penalty system has been introduced for VAT periods beginning on or after 1st January 2023. The new penalties will apply if you are submitting a VAT Return late or paying your VAT late.

The penalties for late submission of VAT Returns will work on a points basis. For each VAT Return you submit late you will receive one late submission penalty point. Once a penalty threshold is reached, you will receive a £200 penalty. After that, you will receive a further £200 penalty for each subsequent late submission. The late submission penalty points threshold will be unique to you and is calculated based on how often you submit your VAT.

Submission frequencyPenalty points thresholdPeriod of compliance
Annually224 months
Quarterly 412 months
Monthly56 months

You will be able to reset your points back to zero if you: 

  • Submit all returns on time for the period of compliance above. 
  • Ensure all outstanding returns due for the previous 24 months have been received by HM Revenue & Customs.

For late payment penalties, the sooner you pay the lower the penalty rate will be. 

  • There will be no penalty charged if VAT has been paid within 15 days of the due payment date. For example, for the March 2023 VAT Return VAT is payable by 7th May 2023.  Therefore, payment needs to be made by close of play on 22nd (7+15) May to avoid a 2% penalty.
  • If any tax is still owed 30 days after the original payment date. i.e., 6th (7+30) June 2023 a further 2% penalty will be charged on this outstanding balance.
  • From day 31, an annualised penalty rate of 4% will apply until the outstanding tax is paid.

To give you time to get used to the changes, HM Revenue & Customs will not be charging a first late payment penalty for the first year from 1st January 2023 until 31st December 2023, if you pay in full within 30 days of your payment due date.

If you pay your VAT late HM Revenue & Customs will charge interest from the due date. The interest rate will be 2.5% above the Bank of England’s base rate.

If you do not always file your VAT return on time because you regularly receive VAT repayments, you must do so in the future. All late filed VAT repayment claims will attract points and penalties even if you are due a refund.

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