New VAT Late Submission, Late Payment Penalties and Interest Charges

As part of HMRC’s ambition to become a modern, trusted tax authority, it is changing the way penalties are issued for submitting late VAT returns and paying VAT late, which will affect all VAT registered businesses from 1 January 2023.

For  VAT periods starting on or after 1 January 2023, HMRC is replacing the default surcharge with separate penalties for late returns and late payment of VAT.  At the same time, HMRC is introducing a new approach to VAT interest.

If you submit your VAT return late

Late submission penalties will work on a points-based system. For each VAT Return you submit late you will receive one late submission penalty point. Once a penalty threshold is reached, you will receive a £200 penalty and a further £200 penalty for each subsequent late submission.

The late submission penalty points threshold will vary according to your submission frequency.

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

You will be able to reset your points back to zero if you:

submit your returns on or before the due date for your period of compliance — this will be based on your submission frequency
make sure all outstanding returns due for the previous 24 months have been received by HMRC

The new points–based system for late submissions is designed to be more lenient for the occasional slip–up, whilst still penalising those who repeatedly fail to comply. Late payment penalties will be charged at different rates based on when payment is received. This means the penalty is more proportionate to the length of time a payment is outstanding – the sooner you pay, the lower the penalty.

HMRC is also introducing late payment interest, which means that you’ll be charged interest from the date your payment is overdue, until the date you pay in full. HMRC is discontinuing repayment supplement and instead will be introducing repayment interest. Customers who make a repayment claim will be paid repayment interest from the day after the due date, or the date of the submission (whichever is later), to the date the repayment is made.

By introducing these changes, HMRC is aiming to incentivise businesses to file their returns on time and pay their VAT on time. This will make it easier for businesses to understand their obligations and help to ensure that HMRC continues to be a modern, trusted tax authority.