New VAT Surcharge System
Updated: Dec 12, 2022
The current default VAT surcharge system - which doesn’t differentiate between late return and late payment (it’s the same penalty for either or both) - is soon to be replaced by a new penalty system. The changes will affect everyone submitting VAT Returns for accounting periods starting on or after 1 January 2023.
What will happen if I file my VAT return late?
Late VAT returns will result in penalties – worked out on a points-based system - with each late return attracting one penalty point.
If you reach a certain threshold (based on how often you file returns as shown in the table below) you will incur a £200 penalty. A further £200 penalty will then be levied for each subsequent late submission.
To reset your penalty point status back to 0 you will need to:
• Submit your returns on or before the due date throughout the period of compliance (as above, based on how often you file returns)
• Ensure all returns for the past 24 months have been filed with HMRC
For late payment penalties, the sooner you pay the lower the penalty rate will be.
Up to 15 days overdue:
You will not be charged a penalty if you pay the VAT you owe in full or agree a payment plan on or between days 1 and 15.
Between 16 and 30 days overdue:
You will receive a first penalty calculated at 2% on the VAT you owe at day 15 if you pay in full or agree a payment plan on or between days 16 and 30.
31 days or more overdue:
You will receive a first penalty calculated at 2% on the VAT you owe at day 15 plus 2% on the VAT you owe at day 30.
You will receive a second penalty calculated on a daily basis at a rate of 4% per year, for the duration of the outstanding balance. This is will be calculated when the outstanding balance is paid in full, or a payment plan is agreed.
Period of familiarisation
To give you 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.
In addition to the penalties outlined above, from 1 January 2023, HMRC will also charge taxpayers late payment interest from when the payment becomes overdue to the day they receive payment. The rate will be the Bank of England base rate plus 2.5%.