skip to navigationskip to main content

T: 01284 245013


HMRC sets new VAT penalties for 2023

Are you VAT registered? If so, it’s important to note that HMRC is changing the rules for businesses who pay their VAT returns late. 

What’s the new penalty for late VAT filings? 

The changes are coming into place in January 2023, so it’s important your business takes action to prepare as soon as possible. The changes see different penalties coming into place. Essentially you get a ‘point’ each time you file a VAT return late. When the number of points exceeds a certain amount, your business will get a £200 fine. The threshold will vary depending on how often your business submits a late VAT return. But don’t worry, the points do eventually expire! 

What is the point structure? 

If you file your VAT monthly, you’ll have a threshold of 5 points. Quarterly it’s 4 points and annually it’s 2 points. 

The current system is a surcharge, which varies depending on how much VAT is due. However with the new system, there’s no link between the two, only the fixed fee. However, this means that businesses filing £0 returns could still get a penalty. 

What’s the new penalty for late VAT payments? 

Unlike the fixed fee system for late VAT filings, the system for late VAT payments works as two different categories and is calculated as a percentage. 

The 1st penalty: 

2% charge on the unpaid VAT at day 15. Followed by an additional 2% charge on the same amount at day 30. 

The 2nd penalty: 

From day 31st and will be charged daily based on an annual rate of 4% of the outstanding late payment. 

Can you negotiate with HMRC to minimise penalty fees? 

HMRC offers an agreement plan called Time To Pay (TTP), where businesses can set up a payment plan with HMRC if they are struggling or unable to pay their bill by the due date. Although it’s important to try to pay your bill by the deadline as much as possible, TTP should not be entered lightly. Furthermore, if you don’t keep up with payments as per your payment plan, HMRC will implement late penalty fees. 

How long do businesses have to adjust? 

Businesses have a ‘period of familiarisation’. HMRC has agreed not to charge for 15 days fines for 12 months, but it’s important for your businesses to prepare and get their VAT processes in order quickly.  

What about interest on late payments? 

As well as the penalty charges mentioned above, HMRC is changing the way interest is applied on late payments. Late payment interest for VAT will be aligned with other taxes and charged at the Bank of England base rate plus 2.5%. However, if HMRC owes you money, repayment interest will be payable at the Bank of England base rate minus 1%.  

Confused? Get in touch 

We help clients understand and ensure they are in-line with the latest VAT payment rules, and the Making Tax Digital changes. Get in touch to find out how we can help.

Subscribe to our newsletter

Our monthly newsletter contains a round up of the latest tax news and updates of what's happening at FWD Accounts

As a subscriber you will automatically receive our newsletter direct to your inbox