Are you prepared for the upcoming changes to VAT penalties?

Are you aware that there are big changes with VAT penalties and interest charges coming into force from January 2023 if your VAT return is submitted or paid late?

HMRC are also going to charge for VAT returns filed via a non-electric submission format.

How much are the VAT penalties from HMRC?

From 1 November 2022 VAT returns not filed through a digital software can face penalties of up to £400. The amount of the penalty depends on the turnover of the business, but the maximum you can be penalised by is currently £400.

HMRC will also charge an additional £5 to £15 per day to businesses for not keeping the records digitally in the appropriate software. At Plus Accounting we recommended using Xero as an appropriate software, but there are a number of alternatives that you can use.

What is the HMRC points system for late filing?

When filing your VAT return late, HMRC are bringing in a points system. Once you hit the penalty points threshold you will be issued with a penalty, this is regardless of whether your returns are payments to, or refunds from HMRC.

For annual returns the threshold is 2 points, quarterly returns the threshold is 4 points and monthly returns it is 5 points.

Removal of these points are based on two conditions.

  1. The subsequent returns are filed in time for the following periods:-
    • Annual 24 months
    • Quarterly 12 months
    • Monthly 6 months
  1. All subsequent returns that had an amount due were received on time.

If you do not go over the points threshold, but you submitted one return late but no further returns late, then the individual point will expire after 24 months.

Once you’ve reached a penalty point threshold, you will receive a £200 penalty and a further £200 penalty for each subsequent late submission while your business remains over the points threshold.

What happens if I also pay my VAT payment late?

When making a VAT payment late, there is now also a late payment penalty regime. In which the quicker you pay the late VAT return payment, the lower the penalty rate will be.

  • 0-15 days after deadline – no penalty if paid in full or agreed a date to pay by.
  • 16 to 30 days after deadline– if this is your first late payment, 2% interest will be charged at day 15 if you have paid in full or agreed a date to pay after 15 days.
  • Over 31 days after deadline – if this is your first late payment, 2% interest will be charged at day 15, plus also 2% of what is still outstanding as at day 30 too.

As this is a new system, HMRC have agreed not to charge a first-time late penalty for payments due on or before 31 December 2023, if paid in full, within 30 days of your expected payment due date.

Author: Debbie MarriottXero & VAT Advisor @ Plus Accounting

Contact me on 01273 701200 or email

Debbie Marriott Plus Accounting portrait

Date published: 06 January 2023

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