With a new penalty regime looming, we thought it would be useful to document how the new penalty scheme will be implemented. For VAT periods starting on or after 1 January 2023, the default surcharge will be replaced by new penalties if you submit VAT returns late or pay VAT late. There will also be changes to how VAT Interest is calculated.

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.

If you submit your VAT return late

Late submission penalties will work on a points-based system. For each VAT Return you submit late you will receive one late submission 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 late submission penalty points threshold will vary according to your submission frequency.

Submission frequency Penalty points threshold      Period of compliance

Annually                                  2                                24 months

Quarterly                                4                                12 months

Monthly                                   5                                6 months

You will be able to 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
• make sure all outstanding returns due for the previous 24 months have been received by HMRC

If you do not pay your VAT on time

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 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 if you pay in full or agree a payment plan on or after day 31.

More than 31 days 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 at a daily rate of 4% per year for the duration of the outstanding balance. This is 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.

How late payment interest will be charged

From 1 January 2023, HMRC will charge late payment interest from the day your payment is overdue to the day your payment is made in full.

Late payment interest is calculated as the Bank of England base rate plus 2.5%.

Introduction of repayment interest

The repayment supplement will be withdrawn from 1 January 2023. For accounting periods starting on or after 1 January 2023, HMRC will pay you repayment interest on any VAT that you are owed.

This will be calculated from the day after the due date or the date of submission (whichever is later) and until the day HMRC pays you the repayment VAT amount due to you in full.

Repayment interest will be calculated as the Bank of England base rate minus 1%. The minimum rate of repayment interest will always be 0.5% even if the repayment interest calculation results in a lower percentage.

If you have any queries on the above changes don’t hesitate to contact us and if you would like Adams Moore to complete or check and file your VAT return, so that any penalties can be avoided, do not hesitate to get in touch on 01827 54944.