In this article, Emma Russell takes a look at the way in which HMRC charges penalties for late VAT return submissions and
late VAT payments has changed. All VAT return periods starting on or after 1 January 2023 will be caught under the new
VAT penalty system.
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 This has been replaced by a points based system.
The changes apply even if submitting a nil or a repayment VAT return. Businesses which are usually in a reclaim position,
such as farmers, will now face penalties for late submission.
Late filing penalties
The deadline for submitting a VAT return remains one calendar month and 7 days after the end of the VAT return period.
If a VAT return is submitted after the deadline, you will receive one penalty point, in the same way as driving license ‘points’. 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:
- 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 |
- All VAT returns which were due within the previous 24 months have been received by HMRC on time.
Late payment penalties
The new late payment penalty system will apply in two stages, fixed penalties and daily penalties. The later the payment, the higher the rate of penalty charged:
| Up to 15 days | None |
| Between 16 and 30 days | Fixed: 2% on the liability at day 15. |
| At 31 days | Fixed: 2% on the liability at day 15, plus 2% of liability at day 30 (i.e 4% if not paid) |
| After 31 days | Daily: Accruing 4% per annum charge of liability until the balance is paid in full. |
Late payment interest
Late payment interest continues to be charged at the Bank of England base rate plus 2.5%.
Interest is charged from the first day the payment is overdue until the liability is paid in full. Late payment interest also applies to late submission and late payment penalties.
Period of familiarisation
HMRC have given businesses a grace period to become familiar with the new VAT penalty system. They will not be charging late penalties until after 31 December 2023 if the VAT liability is paid within 30 days.
Further information can be found at https://www.gov.uk/government/collections/vat-penalties-and-interest or if you have a query please contact your usual contact at Ellacotts.
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.
