New VAT Surcharge Penalties in force from 7th March
07/03/2023
The 1st of monthly VAT Returns and Payments affected are due by the 7th March this is for any VAT Period ended January 2023 onwards. The late payment and late submission penalties were introduced from the 1st January 2023 replacing the old VAT default surcharges and apply to VAT period end dates after the 1st January 2023. Any VAT Period end dates that prior to this date will be apply to the Old VAT surcharge default penalties.
From now on the penalty system will apply as follows:
Late Submission of VAT Returns
Late submission of VAT Return you will receive a penalty point for every late submission. A £200 penalty will be incurred once you hit the penalty point threshold then a subsequent £200 for every VAT Return submitted late. For every late VAT Return submission you will receive 1 penalty point until you reach the penalty point threshold. VAT Penalties will apply to VAT Returns that are VAT refunds and NIL returns. If a business is at the penalty point threshold but submits VAT returns on time will not receive a £200 penalty. An example is below:
VAT Return Period end 31st March 2023 submitted on 10th May 2023 (3 days overdue) 1 penalty point received.
VAT Return Period end 31st March 2024 submitted on 10th May 2024 and has accumulated 4 penalty points already will receive a £200 fine.
Penalty Point Threshold
| Accounting Period | Penalty Points Threshold |
| Annually | 2 |
| Quarterly | 4 |
| Monthly | 6 |
Penalty points last a period of 24 months before they are removed but you must submit the VAT Returns on time ongoing. See HMRC for further information
Late Payment of VAT
Late payment interest will apply on any outstanding VAT payment from the day after the VAT Payment due date. Currently this is 2.5% above the Bank of England Base Rate (4%). Currently this will be a late payment interest rate of 6.5%. Interest will be charged until the payment is made in full. An example is below:
£20,000 Outstanding VAT x 6.5% per annum daily interest equivalent = £3.56 interest per day
10 days overdue x £3.56 per day = £35.60
If a VAT payment is more than 15 days late after the due date then the company will incur a late payment penalty if the payment is received prior to then the no penalty will be incurred. If the VAT payment is overdue more than 30 days overdue then the company will incur a first and second late payment penalty.
1st Late Payment Penalty Calculation
- 2% on the VAT owed at day 15 for VAT payment between 16 and 30 days overdue
2nd Late Payment Penalty Calculation
- 2% on the VAT outstanding at day 15, plus 2% of what is still outstanding at day 30 for payments overdue 31 days or more
The second late payment penalty is then calculated at a daily rate of 4% per year on the outstanding balance and charged daily from day 31 until the outstanding balance is paid in full.
If you want to know further information about this please contact our office on 01913260003 or email hello@redleafaccountancy.co.uk or the HMRC website
Q&A
What happens if I pay my VAT payment after the payment due date of the 12th of month which is 5 days after the due date?
Answer: No payment penalty is incurred, you can pay up to 15 days after the payment due date and you will not incur a penalty. However you will be charged at 2.5% interest over the Bank of England Base Rate.
What if I submit a VAT Return late by 1 day?
Answer: You would receive 1 penalty point.
What if I have been submitting VAT Returns or paying VAT late prior to the new rules?
Answer: All taxpayers will start on zero points with the new system. Any taxpayer who is on a default surcharge will have their slate wiped clean. However they will still liable to pay any charges already received.
If I agree a payment plan for VAT within 15 days of the payment being due and HMRC agrees it, do I still receive a payment penalty?
Answer: HMRC has stated that they will not charge a first late payment penalty on VAT payments due on or before 31st December 2023. If businesses either pay in full or have an agreed payment plan within 30 days of the payment due date then no payment penalty will apply. After 30 days of the payment due date then the 2nd late payment penalty will apply. After 31st December 2023 then 1st payment penalty and 2nd payment penalty will apply unless the business sets up a payment plan within 15 days of the payment due date.
If I agree to a payment plan do I still get charged interest?
Answer: Yes, you will be charged at 2.5% above Bank of England Base Rate. In total 6.5%
