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New VAT penalties Now In Place

For companies who fail to submit their VAT returns or pay their VAT on time, the new penalties will be more reasonable and proportional. The deadline for the first monthly returns and payments subject to penalties was March 7th, 2023.

As a replacement for the VAT default fee, the late payment penalties and points-based late submission penalties went into effect on January 1, 2023, and they are applicable to accounting periods that begin after that date.

Businesses that submit nil returns and repayment returns are likewise subject to the penalty for late VAT returns. The method for calculating interest has also changed.

Penalties for late submission are calculated using a points system. Customers will accumulate penalty points for late VAT returns until they hit the threshold, at which time they will be charged a £200 fine. Each further late submission when at the threshold will result in a further £200 fine, which changes to account for monthly, quarterly, and annual accounting periods.

Businesses must pay a first late payment fee if a VAT payment is more than 15 days overdue. The first late payment penalty increases and a second late payment penalty is also imposed, if the VAT payment is more than 30 days past due. To help individuals in adjusting to the changes, HMRC will waive the first late payment fee for VAT payments due on or before December 31, 2023, providing the business pays in full or arranges a payment schedule within 30 days of the payment's due date.

HMRC will assist companies who are unable to pay their VAT bill in full through payment arrangements. Customers might be able to set up an instalment payment plan to pay their charges. From December 31, 2023, customers who request a payment plan within 15 days of the due date and have it approved by HMRC will not be penalised for paying late as long as they adhere to the terms of the plan. If proposals are made after the first 15 days, late payment penalties may be assessed; however, the agreement of the payment plan may prevent them from increasing.

Late submission penalties do not apply if:

  • first VAT return if a business is newly VAT registered

  • final VAT return after a business cancels its VAT registration

  • one-off returns that cover a period other than a month, quarter or year.

The first late payment penalty is calculated as:

  • 2% on the VAT owed at day 15

  • 2% on the VAT outstanding at day 15, plus 2% of what is still outstanding at day 30 - for payment 31 days or more overdue.

The second late payment penalty is then calculated at a daily rate of 4% per year on the outstanding balance and charged daily from day 31 until the outstanding balance is paid in full.

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