In an effort to simplify and separate VAT penalty and interest, there are new penalties on VAT accounting periods starting on or after 1st January 2023 for VAT returns which are submitted late as well as for VAT which is paid late.

For those with VAT accounting periods starting on or after 1st January 2023, penalties for late submission will be applicable, including on nil or repayment returns.

The VAT default surcharge has been replaced by new penalties for returns submitted after the deadline as well as on VAT which is paid late. There will also be changes to the way in which interest is charged in these instances.

Late submission penalties will work on a points-based system. For each of your returns which is late, you will receive a penalty point until you reach the penalty points threshold. 

Once the threshold is reached, you will receive a penalty charge of £200. You will then receive a further £200 charge for each subsequent late submission while you are above the threshold.

Your penalty point threshold is determined by your accounting period: If your accounting period is annual, your threshold will be 2 points. For quarterly accounting periods there is a threshold of 4 points and for those with a monthly accounting period the threshold is 5 points. 

If you use a non-standard accounting period based on an agreement with HMRC, the thresholds still apply: the monthly threshold is applicable to those with accounting periods of under 8 weeks, the quarterly threshold is in effect for accounting periods of 8-20 weeks and the annual threshold for those whose accounting periods exceed 20 weeks. 

If you receive a penalty point or £200 penalty from HMRC, it will be confirmed in writing, at which point you will be offered a review with HMRC. If you have a reasonable excuse, your penalty may be cancelled. 

Please Note: Late submission penalty points and charges do not apply to – 

  • Your first VAT return if you are newly VAT registered 
  • Your final VAT return after your VAT registration is cancelled 
  • One-off returns which cover an irregular period of time (e.g. a four month return because you have switched from quarterly submission to anual).

For further detail on how these changes affect you directly, get in touch with a member of our team who will be happy to help.

Click the image above for HMRC’s official guidance on VAT penalties and interest.