Changes to HMRC penalties for late VAT return submission

26 May, 2022 · 6 min read

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In January 2023 HMRC will be introducing a new penalty system for late submissions of VAT Returns. The rules will apply to anyone submitting a VAT Return for accounting periods that begin on or after 01 January 2023. And the new rules will apply even if you are submitting a NIL VAT return (that’s a VAT Return with 0.00 figures in boxes 1-9).

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The current rules
Introducing the new rules
Paying the charge on time
Repayment interest

The current rules

At the moment, if you miss your VAT return deadline, HMRC log a ‘default’ on your account. Once you have defaulted, you enter into a 12 month surcharge period. That surcharge is an extra amount that you will owe to HMRC, on top of any VAT that you owe.

The good news is that the first time you default you don’t have to pay the surcharge.

But if you default again within your 12 month surcharge period, you pay an extra amount on top of any VAT you owe to HMRC (that’s the surcharge). The surcharge period is also extended for another 12 months, so you’re encouraged not to default again.

How much is the surcharge? It depends. It’s calculated as an extra percentage of the outstanding VAT from the defaulting period.

The below table from gov.uk website, shows the percentage rates and when they are applied:

Introducing the new rules

The new penalty system will work on a points based system where you’ll be allocated one late submission point for every VAT Return that’s submitted late.

Once you’re over your limit for late submissions, you’ll be charged a £200 penalty. You’ll then be charged an extra £200 penalty for every late submission after that.

The points threshold will vary according to how often you submit your VAT Return. The table below shows the penalty point threshold based on how often you submit.

The good news is that your points can be set back to zero if you submit all your outstanding VAT returns and make sure all outstanding VAT returns for the previous 24 months have been submitted during your period of compliance.

Paying the charge on time

If you don’t pay the penalty charge as soon as it’s been issued, you’ll be hit with further charges.

1-15 days overdue – if you pay the money you owe within this time, you won’t have to pay a penalty charge. If you can’t make the full payment, you can set up a payment plan within this timeframe and the penalty charge will also be suspended.

16-30 days overdue – you’ll be charged an extra 2% of VAT on day 1, as long as you pay your VAT or agree a plan within this time.

31 days or more overdue – you'll be charged the extra 2% of VAT you owe on day 15 and another 2% on day 30.

You’ll also receive a second penalty that will be calculated at a daily rate of 4% for the duration of the outstanding balance. It’ll be calculated when payment is made, either in full or with an agreed payment plan.

You’ll also be charged interest for late payment. This will be from the day the payment is due to the day payment is made in full. Late payment interest is the Bank of England base rate plus 2.5%.

Repayment interest

In January 2023 HMRC will also be introducing an interest on the repayment of VAT owed to you by HMRC.

This will be calculated from the day after the date of submission or the due date (whichever is later – for example if your VAT return is due 7th June, but you submitted it on 30th May – the interest will begin on 8th June) until HMRC repays you. Repayment interest will be calculated as the Bank of England base rate minus 1%. The minimum rate of repayment interest will always be 0.5% even if the repayment interest calculation results in a lower percentage.