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HMRC: A Friendly Reminder About VAT Penalties

A firm yet fair new system ...


Posted by Roger Eddowes on 09/03/2023 @ 8:00AM

HMRC has announced a new penalty system for VAT returns and payments, which will come into effect from the 7th of March 2023 for all VAT return periods beginning on or after the 1st of January 2023 ...

HMRC will assist businesses that are unable to pay their VAT bills in full by providing payment plans!

HMRC will assist businesses that are unable to pay their VAT bills in full by providing payment plans!

copyright: andreypopov / 123rf

This system replaces the existing VAT default surcharge and under the new system, late submission penalties will be calculated based on a points-based system. Each VAT return submitted late will result in a penalty point, which will accumulate until the threshold is reached.

"Once the threshold is reached, a penalty of £200 will be imposed!"

In addition, a further £200 penalty will apply for each subsequent late submission while at the threshold. The threshold varies based on the accounting period, with different thresholds for monthly, quarterly, and annual periods.

Late payment penalties will also be imposed if VAT payments are more than 15 days overdue. If payments remain overdue for more than 30 days, the first late payment penalty will increase, and a second late payment penalty will be applied.

However, to help businesses adjust to the new system, HMRC will not charge a first late payment penalty for VAT payments due on or before the 31st of December 2023, provided that they either pay in full or agree to a payment plan within 30 days of the payment due date.

"HMRC will assist businesses that are unable to pay their VAT bills in full by providing payment plans!"

Businesses may be able to set up payment plans to pay their bills in instalments. If they propose a payment plan within 15 days of payment being due, and HMRC agrees to it, they would not be charged a late payment penalty, as long as they keep to the conditions of the payment plan. However, late payment penalties may apply if proposals are made after the first 15 days. Nevertheless, if HMRC agrees to the payment plan, it can prevent late payment penalties from increasing.

Moreover, HMRC has introduced both late payment and repayment interest, which will replace previous VAT interest rules. This aligns the new regime with other taxes!

Overall, I feel that the new penalty system for VAT returns and payments aims to encourage timely and accurate submissions and payments. The system is designed to be fair and flexible, allowing businesses to make payment plans if they are unable to pay their VAT bills in full.

The introduction of a points-based system for late submission penalties allows customers to avoid penalties if they improve their submission record. However, it is essential to ensure that VAT returns and payments are made on time to avoid penalties and interest charges.

It is crucial for businesses to keep up-to-date with the changes to the VAT penalty system to avoid non-compliance with HMRC regulations.

Until next time ...

Business Godparent


Would you like to know more?

If anything I've written in this blog post resonates with you and you'd like to discover more about the new VAT penalty system from HMRC, it may be a great idea to call me on 01908 774320 and let's see how I can help.

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About Roger Eddowes ...


Roger trained at Edward Thomas Peirson & Sons in Market Harborough before working at Hartwell & Co, followed by Chancery, as a partner. He started Essendon Accounts and Tax with Helen Beaumont in 2014 as a general practitioner with a hands-on approach.

Roger loves getting his hands dirty, working with emerging, small-to-medium and family businesses to ensure they receive the best possible accountancy advice. Roger utilises an extensive network of business contacts to leverage the best guidance and practical solutions.