Changes to VAT penalties

Changes to VAT penalties

From 1 January 2023 the penalties for VAT late filing and late payment are changing. The previous default surcharge regime will be replaced by a points based system.

The new late filing penalties will be points based. Taxpayers will get a penalty point for each VAT return that is filed late. If you file VAT returns quarterly then there is a £200 fixed penalty once you reach four penalty points in a two year period.

There will be two separate penalties, based on how late the payment is –

  • A first penalty of 2% of the unpaid VAT and a further 2% of the VAT unpaiud at day 30
  • A second penalty starting at day 31, charged daily based on an annual rate of 4% of the outstanding amount

Agreeing a Time to Pay arrangement with HMRC will effectively stop the clock and the interest. So agreeing a TTP arrangement before the debt is 15 days old will mean that there is no interest chargeable.