For VAT periods starting on or after 1 January 2023, the default surcharge will be replaced by new penalties if you submit VAT returns late, or pay VAT late.
There will also be changes to how VAT Interest is calculated.
If you are a business that normally gets a VAT refund beware. This will impact many in the agriculture sector in particular.
Under the 2023 changes you will be fined if you don't get your VAT return in by the 7th of the relevant month and fined again for late payment, as any nil or repayment VAT returns received late, will also be subject to late submission penalty points and financial penalties.
More detailed guidance about the changes to VAT late submission penalties, late payment penalties and VAT interest charges will be published in December 2022.
Who is affected?
The changes will affect everyone submitting VAT Returns for accounting periods starting on or after 1 January 2023.
If you submit your VAT return late
Late submission penalties will work on a points-based system. For each VAT Return you submit late you will receive one late submission 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.
Submission frequency Penalty points threshold Period of compliance
Annually 2 24 months
Quarterly 4 12 months
Monthly 5 6 months
You will be able to reset your points back to zero if you:
submit your returns on or before the due date for your period of compliance — this will be based on your submission frequency
make sure all outstanding returns due for the previous 24 months have been received by HMRC
If you do not pay your VAT on time
For late payment penalties, the sooner you pay the lower the penalty rate will be.
Up to 15 days overdue
You will not be charged a penalty if you pay the VAT you owe in full or agree a payment plan on or between days 1 and 15.
Between 16 and 30 days overdue
You will receive a first penalty calculated at 2% on the VAT you owe at day 15 if you pay in full or agree a payment plan on or between days 16 and 30.
31 days or more overdue
You will receive a first penalty calculated at 2% on the VAT you owe at day 15 plus 2% on the VAT you owe at day 30.
You will receive a second penalty calculated at a daily rate of 4% per year for the duration of the outstanding balance. This is calculated when the outstanding balance is paid in full or a payment plan is agreed.
Period of familiarisation
To give you time to get used to the changes, we 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 late payment interest will be charged
From 1 January 2023, HMRC will charge late payment interest from the day your payment is overdue to the day your payment is made in full.
Late payment interest is calculated as the Bank of England base rate plus 2.5%.
Introduction of repayment interest
The repayment supplement will be withdrawn from 1 January 2023.
For accounting periods starting on or after 1 January 2023, HMRC will pay you repayment interest on any VAT that you are owed.
This will be calculated from the day after the due date or the date of submission (whichever is later) and until the day HMRC pays you the repayment VAT amount due to you in full.
Repayment interest will be calculated as the Bank of England base rate minus 1%. The minimum rate of repayment interest will always be 0.5% even if the repayment interest calculation results in a lower percentage.