VAT Penalty Changes from 1st Jan 2023


From the VAT period starting 1st January 2023, the penalty charges for late VAT return submissions and late VAT payments will change, as well as the way VAT interest is calculated. These changes affect all VAT registered businesses (and includes nil or repayment VAT returns).

Sticky note reminder to pay taxes


How the new penalty system will work


Late VAT submissions – each VAT return submitted late receives one penalty point. Once you reach the threshold for penalty points you will receive a £200 penalty fine, plus a £200 penalty fine for any subsequent late submissions. The threshold varies for each business depending on the frequency of submission. For monthly submissions the threshold is 6 points within a 6-month period, for quarterly returns its 4 points in a 12-month period, and for those who submit annually it is 2 penalty points over a period of 24 months.


Late VAT payments – There is no penalty charge for VAT payments paid up to 15 days after the due date. From days 15-30, there is a penalty fine of 2% of the VAT owed. For payments over 30 days overdue, there is a 2% penalty fine for the VAT owed on day 15, plus another 2% of the VAT owed at day 30, plus an additional fine charged at a daily rate of 4% per year until the amount is either paid or a payment plan is agreed.


For the first year of implementation, from 1st Jan 2023 to 31st Dec 2023, HMRC will not charge late payment fines if they are paid in full within 30 days or a payment plan is agreed within this time.


Late Payment Interest

From 1st Jan 2023, this will be charged from the day your payment becomes overdue until the day the payment is paid in full, at a rate of the Bank of England base rate + 2.5%

For further details about the changes to the VAT penalty point system, please click here.

For information about how to ensure your business is best prepared for these changes, contact the IMS team today.