Changes to VAT penalties and interest from 01 January 2023

The way HMRC calculates interest on late VAT payments and repayments of VAT has also changed for VAT periods starting on or after 1 January 2023.

What will happen if you submit a VAT return late?

For VAT periods starting on or after 1 January 2023, penalties for submitting VAT returns late will work on a points-based system. One penalty point will be given for each VAT return submitted late.

If you reach your points threshold, you will have to pay a fixed £200 penalty. You will also have to pay another £200 penalty, each time you submit your VAT return late while you’re at the threshold. Your points threshold will depend on how often you need to submit VAT return.

What will happen if you do not pay your VAT on time

If your payment is more than 15 days overdue, you’ll have to pay a first late payment penalty. If your payment is more than 30 days overdue, you’ll also have to pay a second late payment penalty.

You’ll also be charged late payment interest from the day after your VAT is due to the day you pay in full. Interest will be calculated at the Bank of England base rate plus 2.5%. As at this date interest would be charged at 6.5% (4% base plus 2.5%).

Support for 2023 (1st year of new VAT Penalty Regime)

To help you get used to the new penalty system, HMRC will not charge a first late payment penalty on VAT payments due on or before 31 December 2023, if you either:

  • Pay in full within 30 days of your payment due date
  • Ask for payment plan within 30 days of your payment due date and HMRC agree to it

If your payment is 31 days or more overdue, you will have to pay a first and second payment penalty.

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