New VAT Penalties and Interest Charges in 2023

From 1 January 2023, HMRC has introduced new penalties and interest charges for anyone who submits their VAT returns late. Late submission of VAT will now be based on a point system, depending on how often you submit your VAT return - such as quarterly, annually or monthly. And the good news is that throughout 2023, you won't be charged any surcharge if you pay your full VAT bill within 30 days of your deadline! So make sure you're prepared for these changes and stay ahead of the game!

What’s the Point-Based New System in VAT Returns?

Late VAT submissions are going to be assessed on a point-based system by HMRC. The number of points you acquire is based on how frequently you submit your VAT returns. Your penalty thresholds are as follows.

• If you’re submitting quarterly it's 4, and you'll have 12 months period of compliance
• If it’s annual, then 2 and you'll get 24 months period of compliance with VAT return
• If it’s monthly, it's 5 and the period of compliance with the submission is 6 months

For each late return, your business will receive a penalty point and once threshold is crossed you’ll receive a penalty of £200. The new rules will come into effect for the VAT submissions due after the first of January 2023, giving business owners some time to get used to the changes and avoid any penalties. The first year, as HMRC named it, will be the "period of familiarisation", in another words, HMRC won`t charge you for your first late VAT return.

Currently, if you’re late in submitting your VAT return, you’re charged a penalty of two per cent of the tax due for each month or part of the month that it’s late, up to a maximum of 12 months.

How Time To Pay Arrangement Can Help You?

Time to pay arrangement is a great way of freezing your penalty, especially on the eve of rising VAT penalties and interest rates. Also, the scheme allows you to spread the cost your VAT bill up to 12 months. Once you contact HMRC to explain the reason why you are struggling to pay your bills on time, you may be able to eligible for Time To Pay scheme.

For more information about Time To Pay Arrangement, see our guide.

The New Interest Charges on Late VAT Submissions

If you don’t pay your VAT bill within 30 days of the deadline, you’ll be charged interest on the amount outstanding.

The changes are being brought in to try and encourage businesses to submit their VAT returns on time, as well as pay any tax that’s due.

HMRC estimates that the new rules could raise an extra £200 million a year for the government.

The rates are going to be determined by Bank of England`s interest rates, which currently is 3%.

To find out more about VAT return, late filing penalties and MTD for VAT, find out more about best accounting software to help you out depending on your business type, read our VAT Hub for small business owners.