Get ready for impending changes to VAT fines and interest charges.

If you file your VAT returns or make your payments after the deadline for VAT periods beginning on or after 1 January 2023, new penalties will arise instead of the default surcharge.

The way VAT Interest is calculated will also change.

 Who will the changes affect?

Everyone who submits a VAT Return for an accounting period that begins on or after 1 January 2023 will be impacted by the changes.

Any late-received nil or repayment VAT returns will also incur late submission penalty points and fines.

 What happens if you submit your VAT return late

Penalties for late submissions will operate on a points-based system.

One late submission penalty point will be incurred for each late VAT return that is submitted.

Once a penalty threshold is reached, you will receive a £200 penalty and a further £200 penalty for each subsequent late submission.

Submission frequency, Annually – Penalty points threshold, 2 – Period of compliance, 24 months.

Submission frequency, Quarterly – Penalty points threshold, 4 – Period of compliance, 12 months.

Submission frequency, Monthly – Penalty points threshold, 5 – Period of compliance, 6 months.

It will be possible to reset your points to zero if:

• You submit your returns by the due date for your term of compliance, which will depend on how frequently you do so.
• You ensure HMRC has received all outstanding returns for the past 24 months

What happens if your VAT is not paid on time

The earlier you pay the VAT, the less it will cost you for the late payment.

 Up to 15 days overdue

If you pay the VAT you owe in full or arrange a payment schedule on or between days 1 and 15, you will not incur a penalty.

 Between 16 and 30 days overdue

If you pay in full or agree to a payment plan on or between days 16 and 30, you will avoid the first penalty, which is computed at 2% of the VAT you owe at day 15.

 31 days or more overdue

You will incur a first penalty of 2% on the VAT you owe as of day 15 and an additional 2% on the VAT as of day 30.

For as long as the amount is unpaid, a second penalty will be assessed to you, which will be calculated at a daily rate of 4% per annum. When a payment plan or the whole debt due is agreed upon, this amount is determined.

Familiarisation period

To give you some time to adjust, from 1 January 2023 through 31 December 2023, if you pay in full within 30 days of your payment due date, you will not be charged a first late payment penalty.

 How interest for late payments will be charged

From the day your payment becomes overdue until the day it is paid in full, HMRC will begin charging late payment interest as of 1 January 2023.

The Bank of England base rate + 2.5% is used to compute late payment interest.

 Introduction of repayment interest

From 1 January 2023, the repayment supplement will no longer be available. In its place, HMRC, will pay repayment interest on any VAT owed.

This will be computed from the day following the submission deadline or the due date, whichever comes first, and continuing until the day HMRC fully pays you the refunded VAT amount.

The Bank of England base rate, less 1% will be used to determine the repayment interest. Even if the calculation of repayment interest yields a lower percentage, the minimum rate of interest will always be 0.5%.