VAT Penalty Regime

A new penalty regime for the late submission of VAT Returns and the late payment of VAT liabilities has been introduced for VAT periods beginning on or after 1 January 2023.

Late Submission

The late submission of VAT returns will result in points being issued to taxpayers and points equal penalties!

The number of points you can earn before incurring a penalty will depend on whether you submit annual, quarterly or monthly VAT returns. Once you have reached the penalty threshold a £200 penalty will be charged.

Frequency of SubmissionPoints threshold
Annual2 points
Quarterly4 points
Monthly5 points

A major change to the VAT penalty system is that the penalties apply to the late submission of all VAT returns, even is there is a nil liability or repayment.

There are a few exceptions to the issuing of points for late submission including for those who are newly registered.

In order to “reset” the penalty point clock you must submit returns on time for a set period of time. Again the period depends on whether you submit annual, quarterly or monthly VAT returns.

Frequency of SubmissionCompliance period
Annual24 months
Quarterly12 months
Monthly 6 months

Late Payment

Penalties for the late payment of VAT are based on the length of time which payment is outstanding.

Payment latePenalty
<15 daysNil
16 – 30 days2% of the amount outstanding at day 15
>31 days2% of the amount outstanding at day 15 Plus 2% of the amount outstanding on day 31
 Daily penalties of 4% per annum on the amount outstanding

HMRC will not implement the penalties for payments less than 30 days late during 2023.

Interest will be charged from the date the payment was due at  Bank of England base rate plus 2.5%.

If for any reason you cannot afford to pay your VAT liability you should still ensure that VAT returns are filed on time to avoid late submission penalties. Entering into a Time to Pay arrangement will avoid penalties for the late payment of VAT although interest will still be charged.

HMRC have relaxed some of the late filing penalty rules for 2023 to allow taxpayers to “familiarise” themselves with the new regime but this only applies in some instances and timely submission of VAT returns and payment of liabilities is strongly advised.

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