Starting from 1st January 2023, the VAT penalty regime in the UK has undergone significant changes. The previous default surcharge has been replaced by new penalties for late submission of VAT returns and payment of VAT. These changes are designed to encourage businesses to comply with their VAT obligations in a timely manner, while providing a fair and proportionate system of penalties for those who fail to do so.
Late VAT Returns
Late submission penalties work on a points-based system.
For each return you submit late, you’ll receive a penalty point until you reach the penalty point threshold.
The penalty point threshold is set by your accounting period. The threshold is the maximum points you can receive.
Accounting period Penalty points threshold
Annually 2
Quarterly 4
Monthly 5
Under the new regime, late submission penalties will apply if you submit your VAT return late, regardless of whether it is a nil or repayment return. The amount of the penalty will depend on the number of VAT accounting periods for which the return is late and the length of the delay.
When you reach the threshold, you’ll receive a £200 penalty. You’ll also receive a further £200 penalty for each subsequent late submission while you’re at the threshold.
Penalty example for a business making quarterly returns
A company submits their VAT Return quarterly. This means their penalty point threshold is 4.
They already have 3 penalty points because they submitted 3 previous returns late.
They submit their next return late and get a fourth penalty point. Because they’ve reached the penalty point threshold, they receive a £200 penalty.
The company submits their next return on time. They stay at threshold of 4 penalty points but do not get a £200 penalty.
The company submits their next return late. As they’re still at the penalty point threshold of 4 points, they receive another £200 penalty.
How to remove penalty points if you have not reached the penalty point threshold
If you have not reached the threshold, individual points will expire automatically.
When penalty points expire depends on the date your return was due.
If the deadline for your return was:
- not the last day of a month — a penalty point expires on the last day of the month, 24 months after this
- the last day of a month — a penalty point expires on the last day of the month, 25 months after this
Remove all penalty points if you’re at the threshold
If you’ve reached the penalty points threshold and have the maximum points allowed for your accounting period, you can only remove them by meeting both conditions A and B.
A: complete a period of compliance, submitting all returns by the deadline (see below)
B: submit all outstanding returns for the previous 24 months.
Complete a period of compliance (condition A)
A period of compliance is when you submit all your returns on time.
Depending on your accounting period, you’ll be expected to submit these VAT Returns on time during a period of compliance.
Accounting period Period of compliance Returns to make
Annual 24 months 2
Quarterly 12 months 4
Monthly 6 months 6
Late payment of VAT
The new system will apply in two stages, fixed penalties and daily penalties. The later the payment is, the higher the rate of penalty charged.
You’ll get a first late payment penalty if your payment is 16 or more days overdue.
When your payment is 31 or more days overdue, your first late payment penalty increases, and you get a second late payment penalty. The second late payment penalty includes daily penalties which are charged from day 31 until the date in which the outstanding balance is paid in full.
| 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% on 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 everyday from day 31 until the outstanding balance is paid in full |
Additionally, Interest on overdue tax will continue to be charged from the due date at Bank of England base rate plus 2.5% and will continue to accrue even where a time to pay arrangement has been agreed.
Johnston Wood Roach are professional accountants and tax advisors supporting individuals and businesses. For help and support on managing your VAT returns for your business and avoiding a late penalty charge contact our expert accountancy team today at enquiries@jwraccountants.co.uk or 02392269977
