Be aware of changes to VAT penalties and interest charges in 2023

Getting on the wrong side of the taxman can be fraught with difficulty, so it is worth bearing in mind that new penalties and surcharges on submitting late VAT returns will come in after 1 January next year.

The way interest is calculated will also be changing.

HM Revenue & Customs (HMRC) has said further clarification about the changes will be published in December this year.

What happens if I submit my VAT return late?

A new points-based system is set to be introduced for late submission penalties. For each late return, you will receive one 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.

Who is affected?

The changes will affect everyone submitting VAT Returns for accounting periods starting on or after 1 January 2023.

Any nil or repayment VAT returns received late will also be subject to late submission penalty points and financial penalties.

How am I affected if I pay late?

Up to 15 days overdue: No penalty charge if you pay in full or agree to a payment plan on or between days 1 and 15.

Charge at 16 and 30 days overdue: The first penalty charge will be at two per cent on what you owe on day 15, if you pay in full, or agree to a payment plan on or between days 16 and 30.

Overdue by 31 days or more : On top of what you owe on day 15, there will be a further two per cent added to what you owe on day 30. In addition, you will incur a second penalty at a daily rate of four per cent per year for the duration of the outstanding balance.

What is a familiarisation period?

To give taxpayers time to get used to the changes, HMRC will not be charging a first late payment penalty for the first year from 1 January 2023 until 31 December 2023, if you pay in full within 30 days of your payment due date.

How much interest is charged on late payments?

From next January, HMRC will charge interest on late payments from the day your payment is overdue until it is paid off in full. The rate is the Bank of England base rate plus an additional 2.5 per cent.

Need advice on VAT and related matters? Contact our team today.