Are You Prepared For The New HMRC VAT Late Filing And Payment Penalty Charges?

Are you and your business prepared for the changes to VAT filing deadlines and penalties? These important HMRC rule changes could have significant financial implications for your business, and January 1 2023, when they go live, is just around the corner!

Due at the start of the next calendar (not financial) year, right after the end of year rush and Christmas break, and just as you’re finalising your tax returns, it’s not great timing. At ICS Accounting, we know you’ve better things to do, so we’ve put together a quick overview guide to the changes below. As experts in everything tax and VAT-related, our friendly team of experts are available to answer any questions you may have.

What Are The Main VAT Filing Changes?

  • – New points-based penalty system for late VAT submissions
  • – New interest calculation charges for outstanding VAT payments
  • – New three-stage penalty system for late VAT payments
  • – Period of familiarisation

New Points-Based Penalty System For Late VAT Submissions

Starting 1 January 2023, each late VAT return, including nil returns, will generate one late submission penalty point, which remain live for 24 months, or until the penalty threshold is reached. Reaching the penalty threshold generates a £200 penalty, with further £200 penalties for each subsequent late submission. Completing a period of compliance with no late returns will reset points to zero. Penalty thresholds and compliance periods depend on the frequency you submit your VAT returns, as below:

Submission FrequencyPenalty Points ThresholdPeriod of Compliance
Annually224 Months
Quarterly412 Months
Monthly56 Months

New Interest Calculation Charges For Outstanding VAT Payments

For periods beginning on or 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. The rate applied will be the Bank of England base rate plus 2.5%. Time-to-pay (TTP) arrangements continue to incur interest, althoug they will halt the progression of a further penalty charge (see below).

New Three-Stage Penalty System For Late VAT Payments

For periods beginning on or from 1 January 2023, late payment penalties will be charged as follows:

  • Days 1-15 overdue: You will not be charged a penalty if you pay the VAT you owe in full or agree on a payment plan on or between days 1 and 15.
  • Days 16-30 overdue: You will receive a first penalty calculated at 2% on the VAT you owe at the close of day 15 if you pay in full or agree on a payment plan on or between days 16 and 30.
  • Day 31 onwards overdue: You will receive a further first penalty of 2% on the VAT you owe at the close of day 30. You will then receive a second penalty calculated at a daily rate of 4% per year for the duration of the outstanding balance.

Penalties are charged on tax owed on the penalty trigger dates, so part payments will reduce next-stage charges. TTP arrangements will halt the penalty charge process unless defaulted on. Interest will continue to be charged from the payment due date until paid in full.

Period Of Familiarisation

To allow time for familiarisation, HMRC will waive the first penalty charge (2% at day 15) until 31 December 2023, meaning until that date, no late payment penalties will be incurred on payments made within 30 days of the due date. Payments made after day 30 will incur the full ‘day 31’ penalty charges as above, plus interest will be charged on all late payments or TTP agreements exceeding the original due date. With rising interest rates and the risk of penalty charges, ICS Accounting strongly recommends not becoming reliant on the period of familiarisation.

Replacement Of Repayment Supplement With Repayment Interest

From 1 January 2023, HMRC will pay interest on any VAT refund owed back to businesses from the due date or the date of submission (whichever is later) at the Bank of England base rate minus 1%. If the rate falls below 1% (currently unlikely), a minimum rate of 0.5% will apply. This replaces the current repayment supplement, which comprises a set 5% payment for any refund delayed by HMRC for more than 30 days, and is likely to lower the amount received by businesses.

What Should I Do To Ensure Compliance And Avoid Charges?

These are radical changes; for the first time, late VAT returns and late or missing nil returns will be penalised as well as payments. With more deadlines to adhere to, it will also be vital to keep track of any penalty points accrued.

ICS Accounting’s tax and VAT experts have the knowledge and tools already in place to guide you through these changes simply and compliantly, including TTP agreements and appeals. Or leave us to deal with all your VAT, tax and payroll requirements with one of our tailored accountancy packages, leaving you free to focus on your career and business. You retain full 24/7 online visibility, plus access to our dedicated and understanding experts whenever you need them.

For no-obligation advice or to discuss your individual requirements with one of our friendly team of experts, simply call 0800 195 3750 or email