There will also be changes to how VAT interest is calculated.
The changes will affect everyone submitting VAT returns for accounting periods starting on or after 1 January 2023.
Any nil or repayment VAT returns received late will also be subject to late submission penalty points and financial penalties.
Late submission penalties will work on a points-based system.
For each VAT return submitted, late the business will receive one late submission penalty point.
Once a penalty threshold is reached, the business 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 submission frequency.
Businesses will be able to reset their points back to zero if they:
- Submit their returns on or before the due date for the period of compliance — this will be based on their submission frequency.
- Make sure all outstanding returns due for the previous 24 months have been received by HMRC.
For late payment penalties, the sooner a business pays, the lower the penalty rate will be.
For returns up to 15 days overdue, businesses will not be charged a penalty if they pay the VAT they owe in full or agree to a payment plan on or between days 1–15.
For those between 16–30 days overdue, businesses will receive a first penalty calculated at 2 per cent on the VAT they owe at day 15 if they pay in full or agree to a payment plan on or between days 16–30.
For those 31 days or more overdue, they will receive a first penalty calculated at 2 per cent on the VAT they owe at day 15 plus 2 per cent on the VAT they owe at day 30.
Businesses will receive a second penalty calculated at a daily rate of 4 per cent 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 upon.
To give businesses time to get used to the changes, the HMRC will not be charging a first late payment penalty for the first year from 1 January 2023 until 31 December 2023, if businesses pay in full within 30 days of their payment due date.
From 1 January 2023, HMRC will charge late payment interest from the day payment is overdue to the day payment is made in full.
The repayment supplement will be withdrawn from 1 January 2023.
For accounting periods starting on or after 1 January 2023, HMRC will pay repayment interest on any VAT 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 the repayment VAT amount due in full.
