New VAT late Payment Penalties and Interest Charges

VAT Late Payment Penalties and Interest Fees

From 1st January 2023 there will be a new late payment penalties and interest rates introduced by HMRC.

For late submission of VAT returns there will be a new points-based system, which will replace the current “default surcharge”.

For late payment of VAT returns there will be new interest rates applied and the amount you pay depends on how quick you make the payment.

Key points:

Late Submission Late Payment
  • Comes into force 1/1/23
  • Introduction of points-based system for late submission
  • Number of penalty points depends on submission frequency
  • £200 fine at points threshold
  • Points expire after successful period of compliance
  • Late payment penalties adjusted in line with other tax schemes
  • Two types of late payment penalties – first penalty followed by second/additional penalties
  • Interest charged at 2.5% PLUS B.O.E. base rate
  • No charges if paid within 15 days of due date
  • Period of familiarisation – no first late payment penalty for the first year

What happens if you submit your VAT return late?

The new changes will affect everyone submitting VAT returns for accounting periods starting on or after 1/1/ 2023.

Every time you submit your return late you will receive one submission penalty point.

In addition, nil or repayment VAT returns submitted late will also be subject to late submission penalty points and late payment penalties.

Once you receive a certain number of points, known as the penalty point threshold, you will receive a fine.  

Fines incurred are, £200 when you hit the threshold and a further £200 for each late submission that follows.

Penalty points will be reset when you successfully submit all your VAT returns on time, for a set period, this is known as the period of compliance.

If you fail to submit a return during this allocated time, the period of compliance will be reset, and your points will not be reset.

The penalty point threshold and period of compliance depends on how often you submit your VAT returns.

Submission frequency Penalty points threshold Period of compliance
Annually 2 24 months
Quarterly 4 12 months
Monthly 5 6 months

What happens if you pay your VAT late?

How much you are charged for late payment of your VAT bill depends on how soon you pay what you owe.

Like other tax liabilities, VAT penalty amounts will be tiered based on how many days your payment is overdue.

Up to 15 days overdue Between 16 - 30 days overdue 31 days or overdue
  • No penalty if you pay before 15 days overdue or if you arrange a TTP payment plan
  • Penalty of 2% of amount owed at day 15 if you pay before 30 days overdue or arrange a TTP payment plan
  • Penalty of 2% of amount owed at day 15 PLUS 2% of amount owed at day 30
  • Second penalty at a daily rate of 4% per year for the duration payment was overdue - amount is calculated when payment is made in full or TTP payment plan is agreed

Will HMRC give me time to pay?

If you are struggling to pay your bill on time, then you may be eligible for a Time to Pay agreement (TTP).  Eligibility criteria follows set guidelines and are not available to everyone.

You must be able to prove you do not have the required funds to pay your bill when it is due or would have difficulty securing other finance, such as a business loan.  TTP agreements are not available to companies and/or individuals where the bill is a result of an enquiry or compliance check.

The more notice you give HMRC that you are unable to pay your bill the better, preferably before the payment is due.

If you request a TTP agreement within the first 15 days of the due date, you will not receive any penalty points while you wait to receive a decision on your application.

If your application is successful, no penalty points will be given.

However, if your application is denied, you will be given the number of penalty points based on how long your bill is overdue.

What is the Period of Familiarisation??

For the first year of the new late payment penalty structure, there will be a period of familiarisation.  This is to allow companies to get used to the new structure.

From the 1/1/23 until 31/12/23, the first interest charge of 2% will be wavered, providing that you pay your bill in full within 30 days of its due date.

Whilst RLA Capital cannot offer financial advice, we can arrange various VAT and tax finance facilities to assist with cash flow.  RLA Capital would recommend speaking with your accountant if you are experiencing cash flow problems.

Updated: Oct 28, 2022