From January 2023, HMRC has introduced a new regime for VAT registered businesses who submit their returns late or make payments late.
This is applicable for VAT periods starting on or after 1st Jan 2023.
Late submission penalties now work on a points-based system.
For each return you submit late you will receive a penalty point.
Once you’ve reached a penalty point threshold, you’ll receive a £200 penalty and a further £200 penalty for each subsequent late submission while you’re at the threshold.
If you submit your VAT returns quarterly (like the majority of businesses) then the penalty points threshold is 4. (If you submit annually then the penalty point threshold is 2)
Here is an example:
A company submits their VAT Return quarterly. This means their penalty point threshold is 4.
They already have 3 penalty points because they submitted 3 previous returns late.
They submit their next return late and get a fourth penalty point. Because they’ve reached the penalty point threshold, they receive a £200 penalty.
The company submits their next return on time. They stay at threshold of 4 penalty points but do not get a £200 penalty.
The company submits their next return late. As they’re still at the penalty point threshold of 4 points, they receive another £200 penalty.
When the penalty points are not applied:
The late submission penalty rules do not apply to your:
first VAT return if you’re newly VAT registered
final VAT return after you cancel your VAT registration
one-off returns that cover a period other than a month, quarter or year
For example, you might make a one-off return covering a four-month period because you changed from submitting quarterly to annually.
How the penalty points work with late VAT payments
Late payment penalties can apply to any payments of VAT not paid in full by the relevant due date
For late payment penalties, the sooner you pay the lower the penalty amount will be. You can propose a payment plan at any time which could mean you receive lower or no penalties.
From the first day your payment is overdue, until you pay in full, you will be charged late payment interest.
You will receive a first late payment penalty if your payment is 16 or more days overdue.
When your payment is 31 or more days overdue, you get a larger first late penalty, and a second late permeant penalty.
First late payment penalty
Second late payment penalty
Payment up to 15 days overdue
Payment between 16 and 30 days overdue
Calculated at 2% on the VAT you owe at day 15.
Payment 31 days or more overdue
• 2% of what was outstanding at day 15
• plus 2% of what is still outstanding at day 30
•a daily rate of 4% per year on the outstanding balance
•charged everyday from day 31 until the outstanding balance is paid in full
To avoid late payment penalties, before day 16 you should either pay in full, or arrange a payment plan with HMRC.