Changes to VAT return penalties – Paying VAT due on VAT returns
· Posted on: February 24th 2023 · read
HMRC have introduced changes to the penalties issued when a business submits a VAT return or VAT payment after the deadline for VAT returns starting from 1 January 2023.
Default Surcharges
Historically, businesses would be entered into a default surcharge liability period if they had paid the VAT due after the payment deadline. Repeated late payments increased the default surcharge penalty percentage from 2% to 5%, 10%, and up to 15% of the VAT due.
Default surcharges were cancelled if the late VAT return was a ‘nil’ or repayment return.
VAT returns starting from 1 January 2023 will no longer be within the default surcharge liability period and will start ‘from scratch’.
VAT return payments
Late penalty payments
For VAT returns commencing on or after the 1 January 2023, late penalties will apply if the VAT due is not made in full by the payment deadline.
Late penalty payments do not apply to:
- Payments on account
- Instalments of the VAT Annual Accounting Scheme
The sooner the VAT due is paid to HMRC, the lower the penalty amount.
| Period penalty is overdue | Amount of penalty |
| Payment is up to 15 days overdue | No penalty |
| Payment is between 16 and 30 days overdue | Penalty of 2% of the VAT owed at day 15 |
| Payment is 31 days or more overdue | A further penalty of 2% of the VAT owed at day 15, plus A further 2% of the VAT outstanding at day 30 |
If the VAT is not paid after 31 days, further penalties will be charged each day from day 31 until the outstanding balance is paid in full.
The daily rate is 4% per year on the outstanding balance. The penalty will be calculated once the outstanding VAT has been paid.
HMRC have confirmed that, until 31st December 2023, those who pay the VAT due in full within 30 days of their payment due date will not receive a penalty. If this is not possible, a Time to Pay arrangement must be agreed with HMRC.
Late payment interest
Late payment interest is also payable from the date the payment becomes overdue, until the date the payment is made in full.
Government Gateway
Within the VAT ‘Business Tax summary’ page, HMRC have introduced a ‘VAT penalties and appeals’ section.
This will show any late payment penalties and the VAT return period they relate to. There is also a link provided to appeal the penalty. The Chartered Institute of Taxation has published an example of these screens here.
Time to pay arrangement
If you are facing difficulties paying the VAT to HMRC, you can contact the Payment Support Service (0300 200 3835) to discuss your finances and arrange a Time to Pay arrangement.
If you do not keep to the conditions of the Time to Pay arrangement at any point, it may be cancelled. If this happens HMRC would charge late payment penalties as if the Time to Pay arrangement never existed.
How can MHA help?
If you would like to learn more about the above, or have any questions you wish to raise, please get in touch by filling out the form below.
