15 September 2022

You may be aware that the VAT default surcharge was due to be replaced by new late submission and payment interest charges from April 2022. However, the introduction of this new system was deferred to January 2023. HMRC have now released further information regarding this.

HMRC have announced that this change will affect everyone submitting VAT returns after 1 January 2023. Any nil or repayment VAT returns submitted late will be subject to late submission penalty points and financial penalties.

If a VAT return is submitted late

The new penalty regime will work on a points-based system. For each return that is submitted late you will receive one 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 points threshold will vary depending on the frequency of your VAT returns.

If you do not pay your VAT on time

For late payment penalties, the sooner you pay the lower the penalty rate will be.

Late payment penalties will not be charged if the VAT you owe is paid within 15 days overdue. Between 16 and 30 days overdue, you will receive penalties depending on the amount that is owed. After 31 days overdue you will receive a  further penalty and these will be based off the amounts due.

To avoid late payment penalties, you will have to pay them as soon as they are due or contact HMRC to arrange a payment plan.

For further details on how these penalties will be calculated, please see the below link:

https://www.gov.uk/guidance/prepare-for-upcoming-changes-to-vat-penalties-and-vat-interest-charges

How late payment interest will be charged

HMRC will charge interest from the day your VAT payment is overdue until the payment is made in full. The interest will be calculated as the Bank of England base rate plus 2.5%.

What happens next

Later this year, HMRC will publish further guidance about the changes to late submission penalties, late payment penalties and interest charges. We expect these to be published in December 2022. Once the guidance is received, we will keep you posted with any changes.

If we prepare VAT returns for you, we will send you reminders throughout the period. Please forward us your accounting information by the requested dates so we have enough time to prepare and file your returns by the relevant deadlines.