The penalties for late VAT returns will be changing from 1st January 2023.

In this article, we’ll explain everything you need to know, and how the new penalties for late VAT returns will affect you.

Current penalties for late VAT returns

If you’re registered for VAT, you’ll need to submit VAT returns to HMRC. The deadline for submitting your VAT return – and for paying HMRC –  is usually one calendar month and 7 days after the end of an accounting period.

Under the current system, if you miss your submission deadline, HMRC will record a ‘default’ against your account. You’ll then begin a 12 month ‘surcharge period’ (unless it’s the first time you’ve defaulted). This means you’ll pay extra in addition to the VAT you owe.

What’s changing for late VAT returns?

From 2023, the default surcharge will be replaced by a new system of penalties for late VAT returns, or late VAT payments.

The new system will apply to everyone submitting VAT returns for accounting periods that start on or after 1 January 2023.

Unlike the previous system, under the new penalty system, any nil or repayment VAT returns that are received late will also incur penalties.

What are the new penalties for late returns?

The new penalties for late VAT returns will work on a points-based system.

For each VAT return that you submit late, you’ll receive one penalty point.

Once you reach a penalty threshold you’ll get a £200 penalty, and then receive a further £200 penalty for every subsequent late submission.

The penalty thresholds will vary according to how often you submit your VAT returns:

Submission frequencyPenalty points thresholdPeriod of compliance
Annually224 months
Quarterly412 months
Monthly56 months

If you’ve built up penalty points, you’ll be able to reset them back to zero if you:

  • Submit any VAT returns within your period of compliance, which also varies based on your submission frequency (see table above)
  • Make sure you’ve submitted all outstanding returns due for the previous 24 months

What are the penalties for paying your VAT late?

If you miss the deadline for paying your VAT, the later you pay, the greater the penalty will be.

If you pay your VAT:

  • Up to 15 days late: you won’t be charged a penalty as long as you pay in full, or agree on a payment plan, by day 15.
  • 16-30 days late: You’ll get a first penalty calculated at 2% of the VAT you owe on day 15.
  • 31+ days late: You’ll get a first penalty calculated at 2% of the VAT you owe on day 15, plus 2% of the VAT you owe on day 30. You’ll then receive a second penalty calculated at a daily rate of 4% per year for as long as the balance is outstanding. This will be calculated when you pay the outstanding balance in full or agree on a payment plan.

Getting used to the changes

To give you time to familiarise yourself with the changes, HMRC will not be charging a first late payment penalty for the first year from 1st January 2023 – 31st December 2023, as long as you pay in full within 30 days of your payment due date.

To find out more about the changes, please see this guidance from HMRC.

Late VAT Returns: final thoughts

Dealing with late VAT payments can be a pain and sometimes an expensive process, so make sure you’re always on time with your payments.

Should you need any support, get in touch with Accountants East London today – we’re here to help.