HMRC have announced some upcoming changes to VAT from 1st January 2023 that you need to be aware of. The changes will include new penalties and interest charges. For VAT periods starting on or after 1st January 2023, new penalties if you submit or pay VAT returns late will replace the default surcharge. There will also be changes to how VAT interest is calculated.
These changes will affect everyone submitting VAT Returns for accounting periods starting on or after 1st January 2023. There will also be late submission penalty points and financial penalties for any nil payments or repayment VAT returns received late. This will work on a points-based system, whereby each late submission will receive one penalty point.
Once a penalty threshold is reached, you will receive a £200 penalty and a further £200 penalty for each subsequent late submission.
The late submission penalty points threshold will vary according to your submission frequency.
Late submission penalties
| Submission frequency | Penalty points threshold | Period of compliance |
| Annually | 2 | 24 months |
| Quarterly | 4 | 12 months |
| Monthly | 5 | 6 months |
You will be able to reset your points back to zero if you:
- Submit your returns on or before the due date for your period of compliance. This will be based on your submission frequency
- Make sure HMRC have received all outstanding returns due for the previous 24 months
If you do not pay your VAT on time
For late payment penalties, the sooner you pay the lower the penalty rate will be. If your VAT is up to 15 days overdue, you will not be charged a penalty if you pay the VAT you owe in full or agree a payment plan on or between days 1 and 15. Between 16 and 30 days overdue, you will receive a first penalty calculated at 2% on the VAT you owe at day 15 if you pay in full or agree a payment plan on or between days 16 and 30. For VAT submitted 31 days or more overdue, you will receive a first penalty calculated at 2% on the VAT you owe at day 15 plus 2% on the VAT you owe at day 30.
You will then receive a second penalty calculated at a daily rate of 4% per year for the duration of the outstanding balance. This is calculated when the outstanding balance is paid in full, or a payment plan is agreed.
How late payment interest will be charged
From 1st January 2023, HMRC will charge late payment interest from the day your payment is overdue to the day your payment is made in full. Late payment interest is calculated as the Bank of England base rate plus 2.5%.
The repayment supplement will be withdrawn from 1 January 2023. For accounting periods starting on or after 1 January 2023, HMRC will pay you repayment interest on any VAT that you are owed.
This will be calculated from the day after the due date or the date of submission (whichever is later) and until the day HMRC pays you the repayment VAT amount due to you in full.
Repayment interest will be calculated as the Bank of England base rate minus 1%. The minimum rate of repayment interest will always be 0.5% even if the repayment interest calculation results in a lower percentage.
Period of familiarisation
To give you time to get used to the changes, HMRC will not be charging a first late payment penalty for the first year from 1st January 2023 until 31st December 2023. This is if you pay in full within 30 days of your payment due date.
How Sapphire can help with VAT changes
Our VAT experts help you understand your tax liabilities, so you can rest easy. Speak to a member of our team today.
