Penalties for late VAT payments

HMRC are cracking down on late and unpaid tax payments, with a more concerted push to tackle fraud and criminal activity .

16 January 2023 - Joy Shaw


HMRC collected £731 billion in taxes and duties for the financial year 2021/22, the highest total on record. But is also failed to collect £42 billion in unpaid taxes from individuals and businesses, about 5% of the total tax owed each year. A cross-party Commons public accounts committee recently pointed out that the billions owed to HMRC in unpaid taxes would have filled a large part of the public spending black hole that currently exists, and they also said there was a “moral duty” for HMRC to chase money lost through fraud during the Covid pandemic.

It is no surprise therefore that HMRC are cracking down on late and unpaid tax payments, and there will a more concerted and publicised push to tackle fraud and criminal activity on tax payments.

The latest guidance issued from HMRC concerns changes they are making to VAT penalties and interest charges and provides an even more convincing case to work with your tax adviser to make sure your VAT Return is submitted, and your tax is paid on time. That way you will avoid any fines on top of the existing VAT you are required to pay.

The main changes are as follows:

  • Interest to be charged on late VAT payments

From 1 January 2023 HMRC will charge VAT-registered businesses and organisations interest on late VAT payments from the first day their payment is overdue until it is paid in full. If the payment is more than 15 days late you will also be asked to pay a late payment penalty. Late payment penalties will include any payment due on

  • VAT returns
  • Amendments to a VAT return or correction
  • VAT assessments issued by HMRC if a business failed to submit their tax return
  • VAT assessments issued for any other reason

More details and worked examples are available on the website

  • Fines to be issued on late VAT payments

If your payment for VAT accounting periods starting on or after 1 January 2023 is more than 30 days overdue, first and second late payment penalties apply.

You’ll get a first late payment penalty if your payment is 16 or more days overdue. When your payment is 31 or more days overdue, you get a larger first late payment penalty, and a second late payment penalty.

First late payment               penalty Second late                     payment penalty
Payment up to 15 days overdue None None
Payment between 16 and 30 days overdue Calculated at 2% on the VAT you owe at day 15. None
Payment 31 days or more overdue Calculated at:

• 2% of what was outstanding at day 15

• plus 2% of what is still outstanding at day 30

Calculated at:

•a daily rate of 4% per year on the outstanding balance

•charged every day from day 31 until the outstanding balance is paid in full

Further information on late payment penalties is available on the website

  • Late VAT Returns will be subject to penalty points, followed by a fine

From 1 January 2023, HMRC will apply penalty points if you submit a VAT Return late (including nil payment returns).

Late submission penalties work on a points-based system. For each Return you submit late you will receive a penalty point. Once you’ve reached a penalty point threshold, you’ll receive a £200 penalty and a further £200 penalty for each subsequent late submission while you’re at the threshold.

There is more information on this, including details of VAT Returns not affected by the late submission penalty rules on the website

  • HMRC will pay interest on any VAT overpayments you have made or if they are late in settling a repayment claim

If you’ve charged your customers less VAT than you’ve paid on your purchases, HMRC will usually repay you the difference and will also generally repay you any VAT amounts you’ve overpaid.

If HMRC is late in paying you, you may be entitled to repayment interest on any VAT that you are owed. For accounting periods starting on or after 1 January 2023, repayment interest replaces the repayment supplement.

Additional information on VAT overpayments is available on the website.

If you have any concerns about submitting your VAT return or making your VAT payments on time please get in touch, and our friendly tax team will be happy to assist.

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