Changes to VAT penalties and interest

May 28th 2023

Here is an official letter that HMRC have just sent out to their customers relating to new penalties for submitting VAT returns or paying VAT late.

Apologies if you are already aware of this but it is a useful reminder if you have not yet picked up on the new regime. Particularly important if you are used to normally getting refunds and these are then used to cancel any penalties from being applied. Please do read this letter below.

For VAT periods starting on or after 1‌‌‌ ‌‌January 2023, penalties for submitting VAT returns late will work on a points-based system. One penalty point will be given for each VAT return submitted late. If you reach your points threshold, you will have to pay a fixed £200 penalty. You will also have to pay another £200 penalty, each time you submit your VAT return late while you are at the threshold.

For VAT payments, if your payment is more than 15 days overdue, you will have to pay a first late payment penalty. If your payment is more than 30 days overdue, you will also have to pay a second late payment penalty. You will also be charged late payment interest from the day after your VAT payment is due to the day you pay in full.

If you have any queries at all, please do not hesitate to get in touch with one of the team here at JRW.

By John Craig, JRW VAT expert

Dear customer,

I’m writing to tell you about the new penalties for submitting VAT returns or paying VAT late, which came into effect from 1‌‌‌ ‌‌January 2023. The new penalties replace the default surcharge and now also apply to customers who submit nil or repayment returns.

To avoid penalties, you must:
• submit your VAT returns on time using software that is compatible with Making Tax Digital (unless you are exempt from Making Tax Digital)
• pay your VAT on time

The way we calculate interest on late VAT payments and repayments of VAT that we owe you has also changed for VAT periods starting on or after 1‌‌‌ ‌‌January 2023

What will happen if you submit a VAT return late
For VAT periods starting on or after 1‌‌‌ ‌‌January 2023, penalties for submitting VAT returns late will work on a points-based system. One penalty point will be given for each VAT return submitted late.

If you reach your points threshold, you will have to pay a fixed £200 penalty. You will also have to pay another £200 penalty, each time you submit your VAT return late while you are at the threshold. Your points threshold will depend on how often you need to submit a VAT return.

You can find more information on how late submission penalties work, the points threshold and how to avoid a penalty on GOV‌‌‌.UK. There’s also information on how to remove penalty points you’ve received after submitting your VAT return late.

What will happen if you do not pay your VAT on time
If your payment is more than 15 days overdue, you will have to pay a first late payment penalty. If your payment is more than 30 days overdue, you will also have to pay a second late payment penalty.

You can find more information about how late payment penalties work and how to avoid them on GOV‌‌‌.UK.

You will also be charged late payment interest from the day after your VAT payment is due to the day you pay in full. Interest will be calculated at the Bank of England base rate plus 2.5%. You can find more information about how late payment interest works on GOV‌‌‌.UK.

How we’re supporting you to get used to the new penalty system in the first year
To help you get used to the new penalty system, we won’t charge a first late payment penalty on VAT payments due on or before 31‌‌‌ ‌‌December 2023, if you either:
• pay in full within 30 days of your payment due date
• ask for a payment plan within 30 days of your payment due date and we agree to it

If your payment is 31 days or more overdue, you will have to pay a first and second late payment penalty.

How we’re supporting you to set up a payment plan
We’re here to help if you can’t pay your VAT bill in full. You may be able to set up a payment plan to pay your bill in instalments.

After 31‌‌‌ ‌‌December 2023, if you request a payment plan from HMRC within 15 days of the payment being due and we agree it, you will not be charged a late payment penalty for periods starting on or after 1‌‌‌ ‌‌January 2023. You must also ensure you keep to the conditions of the payment plan.

You will still have to pay late payment interest on overdue payments, even if you have a payment plan in place.

If you don’t request a payment plan within 15 days or we don’t agree it, you will be liable to pay late payment penalties.

If you’ve paid too much VAT
Repayment supplement is being discontinued. If you are owed VAT and we are overdue in repaying this money to you, HMRC will pay you repayment interest. This will be calculated at the Bank of England base rate minus 1% with a minimum rate of 0.5%. You can find more information about VAT repayment interest, including who is eligible and how it is calculated.

Further support
You can also watch our webinars for an overview of the new penalty system for late VAT submissions and payments, and changes to how interest is calculated.

Protect your information
If someone contacts you saying they are from HMRC and wants you to transfer money urgently or give personal information, never let yourself be rushed.

Take your time and check HMRC’s advice about scams on GOV‌‌‌.UK before you do anything. You can also phone us directly, but make sure you use our contact details on GOV‌‌‌.UK.

In addition, never share your HMRC sign in details. Someone using them could steal from you or make a fraudulent claim in your name.

Yours faithfully

Jim Harra
Chief Executive and First Permanent Secretary – HMRC

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