VAT Penalties and interest Charges

26 August 2022


VAT & Customs Duty,

Tax Investigations

HMRC has confirmed the default surcharge for submitting VAT Returns or paying VAT late will be replaced by new penalties, for VAT periods starting on or after 1 January 2023.  The way VAT interest is calculated will also be changing. 

Who is affected?

The changes will affect everyone submitting VAT Returns for accounting periods starting on or after 1 January 2023. 

Any NIL or repayment VAT Returns received late will also be subject to late submission penalty points and financial penalties. 

What will happen if you submit your VAT Return late?

If a VAT Return is submitted late, the associated penalties will work on a points-based system. For each VAT Return that's submitted late, one late submission penalty point will be applied.   Once a penalty threshold is reached, a £200 penalty will be charged, along with an additional £200 for every other late submission. 

The table below shows how the late submission penalty points threshold will vary, based on the frequency of submissions:

You will be able 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. 
  • Ensure that HMRC have received all returns for the last 24 months, submitting any that remain outstanding.  

If you make your VAT Return Payment late

A new system has also been introduced for late payment of VAT liabilities, with a percentage-based penalty regime introduced. 

HMRC will also charge late payment interest from the day the payment is overdue to the day the payment was made in full.    Late payment interest is calculated as the Bank of England base rate plus 2.5%.

Period of familiarisation

To give taxpayers time to get used to the changes, HMRC 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. 

Withdrawal of the repayment supplement

HMRC has also advised that the repayment supplement will be withdrawn from 1 January 2023.   For accounting periods commencing on or after 1 January 2023, HMRC will pay repayment interest on any VAT that's owed.   Repayment interest will be calculated as the Bank of England base rate minus 1%, and the minimum rate of repayment interest will sit at 0.5%.

More detailed guidance about the changes to VAT late submission penalties, late payment penalties and VAT interest charges will be published in December 2022, find out more here. 

Please do not hesitate to contact us should you require any assistance with your tax affairs. 


Mark Roe