New VAT penalties to apply from January 2023

Written by Chris Barlow


December 12, 2022

As we welcome in the New Year, HMRC will be welcoming a new penalty system for the late filing of VAT returns, amongst other changes…

On the 1st January 2023 there will be a new points-based penalty system implemented for the late filing of VAT returns, and new penalties for the late payment of VAT bills. Not only this, but there will be changes to interest charged on late payment of interest for VAT. 

A new, point-based penalty system

Under the new penalty system for late filing of VAT returns, taxpayers will receive a point for each VAT return that they file late. Everyone will start with zero points on the 1st of January 2023. If taxpayers reach a certain threshold of points, a fixed £200 penalty will be charged. The threshold depends on how often the taxpayer files their VAT return. For taxpayers who file their VAT returns monthly, the threshold is five points; for quarterly VAT returns, the threshold is four points; for annual VAT returns the threshold is two points. The points acquired by a business will be viewable on their online accounts. 

Once the threshold is reached, each additional late VAT return will cause the taxpayer to receive further £200 penalties. However, the points will expire after a period of compliance. This will be a set time-period in which your returns must be filed on time, and any outstanding VAT returns for the previous 24 months need to be submitted. If both of these are met by the taxpayer, their points will return to zero!

Within the new penalty system there is no connection between the penalty applied, and the amount of VAT due on the return. Therefore, those filing nil returns will now be subject to late filing penalties. 

Late payment of a VAT bill

The penalties for late payments of VAT bills are completely different to those applied for late returns. There are two separate penalties, depending how late the payment is. The first penalty is 2% of the unpaid VAT at day 15, and then another 2% of the unpaid VAT at 30 days. The second penalty starts on day 31, charged daily based on an annual rate of 4% of the outstanding amount. 

Taxpayers can, however, apply for a Time to Pay (TTP) arrangement with HMRC. This essentially acts as a temporary payment, in that the penalty is paused on the date of the TTP application. It’s important to note though, that if the TTP terms are broken, the taxpayer will be treated as if it never existed and the full penalties will be applied. It is hoped that the TTP arrangement will encourage taxpayers to engage with HMRC if they are struggling to pay, rather than becoming overwhelmed by late payments. 

HMRC have explained that there will be a period of familiarisation until 31st December 2023, in which only the second stage of the penalty will apply. This means that taxpayers will be allowed to pay their VAT bills up to 30 days late, without being penalised. 

If you have any questions, please don’t hesitate to get in touch with Chris Barlow:

[email protected]

+44 (0) 1 942 816 512

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