HMRC’s new late VAT penalties

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If your business is registered for VAT, you need to be aware of this change to HMRC’s penalty regime for late filing.

As of 1st January 2023 HMRC has introduced a new points based penalty system for late filing and payments of VAT returns with interest being charged on all late payments.

This new system penalises those who persistently file and pay late, rather than those that make the odd slip up.  Replacing the old and often criticised default surcharge system where significant penalties were due (previously businesses were hit with large surcharges of between 2% and 15%), even if VAT payment is only one day late. The new regime is more complex, with multi-tier penalties and interest also being charged on all late payments.

There are now four different types of charges:

  • A fixed penalty amount for late VAT Submissions based on a points system. For each submission filed late you will receive a penalty point. In this case though, points don’t mean prizes!  Once you have hit your point threshold you will receive a £200 fine.
  • Interest charged at 2.5% above the Bank of England base rate (applying from the outset).
  • An initial two-part fixed rate penalty for late payments of 2% and 4% of the VAT you owe (applying to the first 15 and 30 days)
  • An ongoing 4% daily interest-based penalty (applying after 30 days)

This change should reduce the number of appeals to HMRC especially where historically a penalty is disproportionate to the amount and timing of the late payment (for example, payment a day or so late due to banking issues).

However, those businesses that persistently fail to submit their VAT returns on time, and are frequently more than 30 days late in paying, will be subject to the highest level of penalties and interest.

By penalising serial offenders more heavily, whilst incentivising compliance and exercising lenience on those that make the occasional slip up, HMRC do seem to have struck a balance with the new penalty regime.  They have also announced they will apply a “light touch” for the first year of operation.  Specifically, where a business is doing its best to comply, HMRC will waive the first 2% fixed penalty for VAT periods up to the end of 2023, meaning that as long payment is made before 30 days after the due date penalties may be avoided.

At Glow Accounts we always carry out a series of monthly checks ensuring our clients, VAT returns are ready to file promptly and are prepared on accurate and up-to date information. 

Not a Glow Client? Why not contact us to review your VAT compliance and for a free VAT health check?


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