HMRC changes to VAT penalties and interest charges comes into effect 1st January 2023

by | Jan 3, 2023

5 stacks of pound coins

For VAT periods starting on or after 1st January 2023, the default surcharge fee for filing late VAT returns has been replaced with a new penalties system.  Note nil or repayment returns will also need to be filed on time to avoid incurring penalties.

What happens if you submit your VAT return late

Late submission penalties will work on a points-based system. 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:

Submission Frequency Penalty Points Threshold Period of Compliance
Annually 2 24 months
Quarterly 4 12 months
Monthly 5 6 months

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 as shown in the above table:
  • make sure all outstanding returns due for the previous 24 months have been received by HMRC

How will late payment penalties be calculated?

Up to 15 days overdue

You will not be charged a penalty if you pay the VAT you owe in full or agree a payment plan up to 15 days after your payment was due.

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 a payment plan on or between days 16 and 30.

 31 days or more overdue

From this point on, the penalty will be calculated on a daily rate of 4% per year for the duration of the outstanding balance. This will be calculated when the outstanding balance is paid in full or a payment plan it agreed.

How late payment interest will be charged

HMRC will charge late payment interest from the day your payment is overdue to the day your payment is made in full.

Late payment interest is calculated as the Bank of England base rate plus 2.5%.

How late repayment interest will be calculated

HMRC will pay interest on refunds of VAT based on the latest of the due date or date of submission until the repayment date. The rate will be the Bank of England base rate minus 1%, with a minimum rate of 0.5%.

 Whilst these new penalties and charges come into effect from the first return after 1st January 2023, in order to give you time to get used to the changes, they will not be charging a first late payment penalty during the year to 31st December 2023, if you pay in full within 30 days of your payment due date.

As a business, if you are struggling with making your VAT payment, contact HMRC at the earliest opportunity to enquire about a payment plan and avoid these penalties and charges.




Sue Haynes is the founder of Cactus Bookkeeping and helps business owners
with all aspects of Bookkeeping to save them time so they can concentrate on running their
business. Sue is licensed, regulated and supported by the Institute of Certified Bookkeepers (ICB)