New UK VAT late payment and interest rules

08 December 2022

From 1 January 2023, HM Revenue & Customs (HMRC) introduce a new penalty and interest regime that will replace the default surcharge rules for late filing and late payment of VAT.

Late submission penalties

This works on a points-based system: when you submit a VAT return after the deadline, you will receive a penalty point. Once you exceed the point threshold for multiple missed returns, a flat penalty of £200 will be imposed for each late return.

The late submission point threshold will vary according to each taxpayer’s 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 in the following scenarios:

  • submit VAT returns on or before the due date for your period of compliance — this will be based on your submission frequency
  • make sure all outstanding VAT returns due for the previous 24 months have been received by HMRC

Late payment penalties

Under the new regime, the sooner you pay the overdue VAT, the lower the penalty rate will be. The penalty is calculated based on how many days after the deadline your VAT payment is received by HMRC. The deadline is 1 month and 7 days after the end of the VAT period:

  • Up to 15 days overdue: no penalty is charged if you pay the VAT or agree a payment plan on or between days 1 and 15.
  • Between 16 and 30 days overdue: you will receive a first penalty at 2% on the VAT you owe on day 15 if you pay the VAT 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 on day 15, plus 2% on the VAT you owe at day 30. This means, if no payment is made until day 30, the first penalty will be 4% of the amount due. In addition, you will receive a second penalty calculated at a daily rate of 4% per year for the duration of the outstanding balance. This will be calculated when the outstanding balance is paid in full or a payment plan is agreed.

Period of familiarisation

To familiarise you with the new regime, HMRC will not be charging the first late payment penalty of 2% from 1 January 2023 until 31 December 2023. This means, if the payment is made within 30 days of the due date, you will not receive a late payment penalty. However, there will still be late payment interest.

Interest changes

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. The rate applied will be the Bank of England base rate plus 2.5%.

The changes also apply to the repayment. The repayment supplement will be withdrawn from 1 January 2023 and replaced by the repayment interest, which will accrue from the day after the due date or submission date (whichever is later) until HMRC makes the full repayment. This rate for repayment interest will be much lower than the late payment interest, as it is set at the Bank of England base rate minus 1% (subject to a minimum rate of 0.5%).

To optimise your tax position or if you need any assistance with your VAT returns, company accounts or more information about the new penalty rates for VAT please contact Sean O’Sullivan.

How Can We Help You?