HMRC VAT Penalty System

HMRC has introduced a new penalty system for all VAT return periods starting on or after 1 January 2023 and payments due from 7 March 2023. It replaces the existing VAT default surcharge. It’s hoped that this new penalty system will be fairer and more proportionate to businesses.

A snapshot of Late Submission point-based Penalties

Late submissions will be subject to a point-based penalty system. For each return that’s submitted late, you’ll receive a penalty point until you reach the penalty point threshold. When you reach this threshold, you’ll receive a £200 penalty. You’ll also receive a further £200 penalty for each subsequent late submission whilst you’re at the threshold.

For example, customers that file quarterly will have a threshold of 4 points. The threshold differs depending on the frequency of filing and other circumstances.

A snapshot of Late Payment Penalties

This is a time-based penalty that comes into effect once your VAT payment is overdue. If HMRC receives payment more than 15 days late, you’ll pay a first late payment penalty. Where HMRC receives payment more than 30 days late the first late payment penalty increases, and a second late payment penalty will apply.

In order to avoid this scenario, the Government recommends you get in contact with them between days 1 and 15 to ask for more time to pay. Alternatively you can propose a payment plan at any time which could result in lower or no penalties. The key thing to remember is the sooner you pay, the lower the penalty amount will be.

Where can i find out more information?

We highly recommend that you take time to learn about the new penalty system, you can familiarise yourself with the new regulations on the Gov Website. The new penalty system means you won’t receive a fixed financial fine if you make a simple and single administrative mistake or file a single late submission. The full Press Release from HMRC can be read here.