New VAT penalty regime and other VAT news

Now we all know that we live in a world of deadlines and however much we might relent against it, we can’t really! So let’s get on with hitting them. If your company is VAT registered, then you must be registered for MTD and filing through this mechanism. If you would like some guidance on this then please contact our VAT guru, Jojo.  

With deadlines being so important and the human condition something preventing them from being met, HMRC have introduced a new VAT penalty regime. Now I think it might be best for all to understand the current penalty regime for VAT first. There are two seperate elements to the current regime; surcharges and penalties. These would apply if your VAT return is not submitted to HMRC by the deadline (one month + 7 days after the end of your VAT quarter) or if full payment is not received by HMRC by the deadline (one month + 7 days after the end of your VAT quarter).


You may enter a 12 month surcharge period if you default. The surcharge is a percentage of the VAT outstanding on the due date for the quarter that is in default and is in addition to the VAT due. The table below shows the default surcharge percentages. There is no surcharge on the first default

Defaults within 12 monthsSurcharge if annual turnover is less than £150,000Surcharge if annual turnover is £150,000 or more
2ndNo surcharge2% (no surcharge if this is less than £400)
3rd2% (no surcharge if this is less than £400)5% (no surcharge if this is less than £400)
4th5% (no surcharge if this is less than £400)10% or £30 (whichever is more)
5th10% or £30 (whichever is more)15% or £30 (whichever is more)
6 or more15% or £30 (whichever is more)15% or £30 (whichever is more)


In addition to the surcharge, HMRC can charge you a penalty up to:

  • 100% of any tax under-stated or over-claimed if you send a return that contains a careless or deliberate inaccuracy
  • 30% of an assessment if HMRC sends you one that’s too low and you do not tell them it’s wrong within 30 days
  • £400 if you submit a paper VAT return, unless HMRC has told you you’re exempt from submitting your return using your VAT online account or Making Tax Digital compatible software


The good news is that the introduction of the new regime has been deferred to January 2023 to allow HMRC more time to make the necessary systems changes.

The changes will replace default surcharge with:

  • Points- based penalties for late submission;
  • Interest charges; and
  • Late payment penalties.

We will update you as more information is made available by HMRC. 

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