The Ellacotts VAT team looks at the way in which HMRC charges penalties for late VAT return submissions and late VAT payments. All VAT return periods starting on or after 1 January 2023 will be caught under the current VAT penalty regime.
There are now separate penalties for late submission of a VAT return and late payment of VAT to HMRC. The previous surcharge-based scheme applied to both late submissions and late payments of VAT. This has been replaced by a points-based system for late returns.
Late Filing Penalties
The deadline for submitting a VAT return is usually one calendar month and 7 days after the end of the VAT return period, unless you are within the POA regime where the 7 day extension does not apply.
If you use the annual accounting scheme, your annual VAT return will be due for submission two months after the end of your VAT accounting period.
If a VAT return is submitted after the deadline, you will receive one penalty point, in the same way as driving license ‘points’. This will also apply to those submitting a nil or a repayment VAT return. Businesses which are usually in a reclaim position, such as farmers, will be issued points for late submissions.
Once the penalty point threshold has been met, a fixed penalty of £200 will be issued. The penalty point threshold varies depending on the frequency of your VAT returns:
Submission frequency Penalty points threshold
Annually 2 points
Quarterly 4 points
Monthly 5 points
Further, £200 penalties will be issued for every late submission after that, while you remain at the threshold.
Exceptions
The late submission penalty rules do not apply to:
- The first VAT return if you are newly VAT registered.
- The final VAT return after you cease your VAT registration.
- Any one-off returns that cover a period other than a month, quarter, or year.
How and when are points removed?
Penalty points expire after 2 years, as long as you are not at your points threshold. If you are at the points threshold, the only way points can be removed is by meeting the following conditions:
A.) All returns in the subsequent period of compliance (dependent on the submission frequency as detailed below) have been submitted on or before the due date.
Submission frequency Period of compliance
Annually 24 months
Quarterly 12 months
Monthly 6 months
B.) All VAT returns which were due within the previous 24 months have been received by HMRC on time.
Late Payment Penalties
The late payment penalty system will apply in two stages for non-payment of VAT, fixed penalties and daily penalties. The later the payment, the higher the rate of penalty charged and is as follows:
- Unpaid VAT is up to 15 days overdue – No penalty charged.
- Between 16 and 30 days overdue – Fixed 2% penalty on the VAT owed at day 15.
- At 31 days overdue – Fixed 2% penalty on the liability at day 15, plus a further 2% of the liability at day 30 (i.e. 4% if not paid).
- 31 days or more overdue – Daily penalties accruing at 4% per annum of outstanding VAT until the balance is paid in full.
Interest on overdue VAT will continue to be charged from the due date at the Bank of England base rate plus 2.5% and will continue to accrue even where a time to pay arrangement has been agreed.
Interest can be levied on payments due:
- on your VAT Return
- following an amendment to a return or correction
- from a VAT assessment, we issued when you did not submit your return
- from a VAT assessment, we issued for another reason
Further information can be found at https://www.gov.uk/guidance/how-late-payment-penalties-work-if-you-pay-vat-late or if you have a query please contact our VAT Team at Ellacotts on 01295 250401 or email solutions@ellacotts.co.uk.
Information for readers: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.
