New VAT Penalty System

HMRC is introducing a new 'fairer' cross tax penalty system which will affect all VAT periods commencing on or after 1 January 2023...

HMRC's New VAT Penalty Regime

The new system introduces 2 separate penalties for

•             late submission of VAT returns; and/or

•             late payments of VAT

Late submission of VAT returns

The new system will operate on a points basis. Businesses will receive penalty points each time a return is filed late. Once they reach a given penalty threshold they will receive a fixed £200 penalty.

Businesses will receive additional £200 penalties for further late submissions.

Penalty points expire after a period of 2 years unless the business is already at the penalty point threshold. Businesses can also reset their penalty points by observing a period of compliance and ensuring that all o/s returns are filed.

The table below provides details of the penalty point thresholds and the compliance periods that must be observed thereafter to reset a business's penalty points.






2 points

4 points

5 points


24 months

12 months

6 months

Late Payment Penalties

The big change here is that penalties will increase based on the length of time the tax remains outstanding.

For late payment penalties, the sooner you pay the lower the penalty rate will be.


Up to 15 days overdue

Between 16 and 30 days overdue

31 days or more overdue


No penalty if o/s tax paid or full payment plan agreed between days 1 & 15

2% penalty calculated on o/s balance at day 15 if o/s tax paid or payment plan agreed between days 16 and 30

2% on the VAT you owe at day 15 plus 2% on the VAT you owe at day 30, plus

a further penalty calculated at a daily rate of 4% per year for the duration of the outstanding balance (calculated when the o/s tax is paid in full or payment plan is agreed

Businesses wlll pay interest on o/s tax balances at a rate of 2.5% plus the BOE base rate.

Interest payable to businesses - HMRC is scrapping the repayment supplement. Instead HMRC will pay interest to all businesses due a VAT repayment. Interest will be paid at the BOE base rate less 1% but not less than a minimum of 0.5%.

Please contact us if you wish to discuss or require assistance with any of the above.