For VAT periods starting on or after 1 January 2023 a new penalty and interest regime has been introduced for both the late filing of VAT returns (even if they are a repayment or a nil return) and the late payment of VAT.
LATE FILING PENALTIES
Late filing penalties will work on a points based system with each late return incurring a penalty point.
Once you have reached a penalty threshold you will receive a £200 penalty. Each subsequent late VAT return will incur a further £200 penalty while you are at the threshold.
The penalty point threshold is determined by your accounting period as per the table below:
| ACCOUNTING PERIOD | PENALTY THRESHOLD |
| Annually | 2 |
| Quarterly | 4 |
| Monthly | 5 |
For example:
A company submitted their VAT returns quarterly. They have submitted the previous three VAT returns late so have already incurred 3 penalty points.
They submit their next return late so now have 4 penalty points and therefore get a £200 penalty.
They then submit their next VAT return on time so stay at the threshold of 4 but do not get a £200 penalty. However, as they then submit the following VAT return late they get a penalty of £200 as they are still at the penalty threshold of 4.
How to remove penalty points
If you have reached the penalty point threshold the only way to remove them is by:
- Completing a period of compliance AND
- Submitting all outstanding returns for the previous 24 months
The period of compliance is; 24 months if you submit annual returns; 12 months if you submit quarterly returns and 6 months if you submit monthly returns.
LATE PAYMENT PENALTIES AND INTEREST
Here is how the late payment penalties will work:
| FIRST LATE PAYMENT PENALTY | SECOND LATE PAYMENT PENALTY | |
| Payment up to 15 days overdue | None | None |
| Payment between 16 and 30 days overdue | Calculated at 2% of the VAT you owed at day 15. | None |
| Payment 31 days or more overdue | Calculated at 2% of the VAT you owed at day 15. PLUS 2% of what is still outstanding at day 30. | Calculated at 4% per year on the outstanding balance and charged everyday from day 31 until the outstanding balance is paid in full. |
Time to Pay Arrangements
If you know you are unable to pay your VAT on time then if you ring HMRC to arrange a ‘Time to Pay’ (TTP) then if the application is successful then it is the application date that is effectively treated as the payment date and will stop any penalties from arising (if it is applied for before day 14). If the TTP is applied for after day 14 then the penalties are incurred up to the point of the application but not after that date.
If you do not adhere to the TTP agreement and do not make the agreed payments then the penalties are incurred as though the TTP did not exist.
You are able to inform HMRC of any genuine reasons why your business cannot pay the VAT on time and the usual provisions around reasonable excuse will apply even when a TTP has not been arranged.
The HMRC contact number to arrange a TTP is 0300 200 3835.
Interest charges
From the day a VAT payment becomes overdue HMRC will charge interest at the Bank of England base rate+2.5% (at 1/3/23 this equated 6.5%) until the date the liability is paid in full.
If you are due a VAT refund from HMRC then you will receive interest at the Bank of England base rate less 1% (at 1/3/23 this equated to 3%) on the amount they owe you between the period of either the submission date or the day after the due date (whichever is later) and the date HMRC make the repayment.
Familiarisation period
HMRC are giving a 12 month period of familiarisation up to 31 December 2023 in which the first late penalties will not be charged. So payments made within 30 days of the due date will not incur any charges. Ordinary late payment interest will be charged in this time though.
Conclusion
Always ensure that your VAT return is filed and paid on time. It may be worth setting up a direct debit to ensure that your payments are always made on time. This also gives you an extra 3 days credit. You can set up a direct debit through your business government gateway account.
If you are struggling to pay your VAT always reach out to HMRC and arrange a Time to Pay plan and then stick to it.
If you have any questions on this article and how it affects you and your business, please get in touch.
JLA Accounting Limited takes every care in preparing material to ensure that the content is accurate and up to date. However, no responsibility for loss for anyone acting from or refraining from acting as a result of this information can be accepted by JLA Accounting Limited.
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