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Late VAT Return Penalties

All people submitting VAT Returns for periods starting on or after January 1, 2023, will be subject to a new penalty system for paying VAT late.

For VAT payments that are not resolved within 15 days of the due date, the new system applies a 2% penalty. If VAT is not paid within 30 days of the due date, a further 2% penalty will be assessed. Thereafter, unpaid VAT liabilities will be subject to a 4% annual penalty rate.

When penalty charges start to accrue, they are applied to the value of any unpaid VAT. Therefore, paying in instalments may aid in lowering the penalty fees.

If VAT is fully paid within 30 days of the payment due date, HMRC has introduced a "grace" period during which businesses will not be charged a first late payment penalty from 1 January 2023 to 31 December 2023.

Additionally, interest fees have been added to late VAT payments. A 2.5% premium over the Bank of England base rate will be applied to interest payments.

Any VAT that businesses owe HMRC will be subject to repayment interest, which will be computed from the day following the due date or the day of submission (whichever comes later) and continuing until HMRC pays the payback VAT amount due in full. Repayment interest will be determined by subtracting 1% (within a minimum of 0.5%) from the Bank of England base rate.

Businesses that submit quarterly VAT returns with a period ending in January or February 2023 will still be subject to the old default surcharge regime for any late VAT payments for these periods because the new interest and penalty regime will not take effect until periods that begin on or after 1 January 2023.


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