A new VAT penalty regime has come into effect for VAT periods commencing on or after 1 January 2023, this regime replaces the old default surcharge regime.
These changes will have implications in particular for repayment traders who, under the old system, were largely able to avoid penalties for unsubmitted VAT returns.The new penalty regime affects the VAT periods commencing on or after 1 January 2023. For quarterly VAT returns, the first affected periods are:
- March/June/September/December stagger – QE 31 March 2023
- January/April/July/October stagger – QE 30 April 2023
- February/May/August/November stagger – QE 31 May 2023
The key change is that there are now two separate penalty regimes which deal with:
- The late submission of VAT returns
- The late payment of VAT liabilities
Late Submission of VAT returns
The new system takes a points-based approach. A trader gets a penalty point for each VAT return submitted late. When the penalty point threshold is reached a penalty of £200 is levied. The penalty threshold for quarterly VAT submissions is 4. If a trader submitting quarterly VAT returns already has 3 penalty points and they then submit another VAT return late, then they will have reached the penalty threshold and the first late submission penalty of £200 will be issued in respect of each late VAT return.
This is a significant change for those who submit repayment VAT returns or NIL returns. The trader can return to a clean record and reduce their penalty points down to nil. If the penalty point threshold is not reached, the penalty points will be reduced to zero if the following two conditions are met:
- All returns for the 12 months after the penalty point threshold was reached have been submitted on time.
- All returns for the previous 24 months have been submitted by the business.
Late Payment of VAT
The late payment penalties will apply to any VAT not paid in full by the relevant due date, with the exception of VAT payments on account and instalments under the Annual VAT accounting scheme. The later the payment is made, the more the penalty will be. The first late payment penalty will be triggered if a VAT payment is more than 16 days overdue. The penalties increase if the VAT is still unpaid after 31 days. The first late payment penalty will be triggered if a VAT payment is more than 16 days overdue. The penalties increase if the VAT is still unpaid after 31 days.
Penalties are as follows:
| First late payment penalty | Second late payment penalty | |
| Payment up to 15 days overdue | None | None |
| Payment between 16 and 30 days overdue | Calculated at 2% of the VAT you owe at day 15 | None |
| Payment 31 days or more overdue | Calculated at: 2% of what was outstanding at day 15; plus
2% of what is still outstanding at day 30. |
Calculated at: A daily rate of 4% per year on the outstanding balance
Charged every day from day 31 until the outstanding balance is paid in full. |
Guidance – HM Revenue & Customs
Links are provided below to useful guidance from HM Revenue & Customs in relation to the changes.
Overview of the penalty point regime:
Penalty points and penalties if you submit your VAT Return late – GOV.UK (www.gov.uk)
Overview of the penalty points and penalties:
Penalty points and penalties if you submit your VAT Return late – GOV.UK (www.gov.uk)
If you have any queries or require any assistance in relation to these charges, please contact the Omagh office:
The above article is for general guidance and informational purposes only and is not intended to constitute legal or professional advice. It should not be taken as specific advice for your own circumstances and relied upon. You are advised to take professional advice before taking any action in relation to the above matters.
