Changes to VAT surcharges, interest, and penalties

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Changes to VAT surcharges, interest, and penalties from January 2023

Yasmine Kaleem • 15 December 2022

Time to read: 4 minutes

For all VAT returns starting on or after 01st January 2023, the VAT surcharge system will be replaced by a new system including penalties, penalty points and interest. This will be applied to all VAT returns either submitted late or paid late to HMRC, including nil submissions and VAT refunds.

If you submit your VAT return late

Each time a VAT return is submitted late, a late submission penalty point will be issued.

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

When a penalty threshold has been reached, a £200.00 penalty is issued. All subsequent VAT returns that are submitted late will also be subject to a further £200.00 penalty. The points can be brought back down to zero if all VAT returns are submitted on time before the period of compliance (shown in the table above) as well as submitting all outstanding returns for the last 24 months.

If you pay your VAT liability late

Up to 15 days overdue – there will be no penalties if the VAT is paid in full or a payment plan is arranged.

Between 16 and 30 days overdue – the penalty charged is calculated at 2% of the VAT liability that is owed at day 15.

More than 31 days overdue - the penalty charged is calculated at 2% of the VAT liability that is owed at day 15 and a further 2% on the VAT that is owed on day 30. A second penalty will also be issued and calculated at a daily rate of 4% per year up until the whole outstanding balance has been paid.

As these are new changes, HMRC will not charge a first late payment penalty from 01st January 2023 to 31st December 2023, if you pay in full within 30 days.

If you have any questions regarding this new change, please do not hesitate to contact us.

At your service!

For more information visit:

https://www.gov.uk/guidance/prepare-for-upcoming-changes-to-vat-penalties-and-vat-interest-charges

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