Please note that we close at 5pm on Friday 22/12/23 and re-open at 9am on Tuesday 2/1/24. Merry Christmas and a very HAPPY NEW YEAR!!

Get ready for new VAT points-based penalties from 2023

by Michael Blaken

Published on 8th December 2022

HMRC is bringing in a new regime for VAT penalties, starting on 1 January 2023.

For VAT periods starting on or after 1 January 2023, HMRC is replacing the default surcharge with separate penalties for late returns and late payment of VAT. At the same time, HMRC is introducing a new approach to charging interest on late-paid VAT.

The new points-based system for late submissions is designed to be more lenient for the occasional slip-up, whilst still penalising those who repeatedly fail to comply. It will operate in a similar way to the penalty points system for motoring offences. Also, like the system for motoring penalties, the points expire after a period of time.

New points-based penalty system for late VAT returns

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 and a further £200 penalty for each subsequent late submission.

The late submission penalty points threshold will vary according to your submission frequency.

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

  • submit your returns on or before the due date for your period of compliance — this will be based on your submission frequency
  • make sure all outstanding returns due for the previous 24 months have been received by HMRC

Penalties for late payment of VAT

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

Up to 15 days overdue: you will not be charged a penalty if you pay the VAT you owe in full or agree on a payment plan on or between days 1 and 15.

Between 16 and 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 on a payment plan on or between days 16 and 30.

31 days or more overdue: you will receive a first penalty calculated at 2% on the VAT you owe at day 15 plus 2% on the VAT you owe at day 30.

You will receive a second penalty calculated at a daily rate of 4% per year for the duration of the outstanding balance. This is calculated when the outstanding balance is paid in full or a payment plan is agreed upon.

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

For help and advice on tax planning and VAT, talk to the accountants at Optimum. We work with business owners in Swindon, Wiltshire, Cheltenham, and Gloucestershire.

Next post...

Sole trader versus limited company: what’s best for business?

When you first start a business, a decision that needs making is whether to become a sole trader or set up a limited company.

Read more

Previous post...

Gifting at Christmas? Here are the tax rules you need to know

Christmas is on its way, and for business owners this may also mean the time for making gifts and entertaining - so what are the tax rules?

Read more

Stay up to date