HMRC VAT Penalty and Interest changes

HMRC announced changes to VAT penalty and interest charges for VAT periods starting on or after 1 January 2023.

The changes to penalties and interest for late VAT Return submissions and payments, also apply to businesses that submit nil returns and repayment VAT Returns.

Late VAT Return submission

Penalties for late VAT Return submissions will be calculated using a points based system.

For each VAT Return submitted late, clients will receive a penalty point until they reach the penalty point threshold. After the threshold, they will receive a £200 penalty.

A further £200 penalty will also apply for each subsequent late submission while at the threshold, which varies to take account of monthly, quarterly and annual accounting VAT periods.

Late VAT Return payment

Penalties will be applied if a VAT Return payment is more than 15 days late. This penalty will be known as a first late payment penalty.

If the VAT payment is more than 30 days late, the first late payment penalty will increase and an additional penalty will be applied, known as a second late payment penalty.

VAT Return payment plans

Clients who cannot pay their VAT payments in full, may be able to set up a payment plan with HMRC. A payment plan allows for payments to be paid in equal instalments until the balance owed is fully paid.

Following 31 December 2023, if a client requests a payment plan within 15 days of the VAT Return payment being due and HMRC agrees the plan, they will not be charged a late payment penalty providing they upkeep with the terms of the payment plan.

Late payment penalties can apply where a payment plan is requested after the first 15 days of the payment being due. Once the payment plan is agreed, it can prevent the penalties from increasing.

Late payment interest

HMRC has now introduced both late payment and repayment interest, which will replace previous VAT interest rules.

Late payment interest is charged from the first day that the payment is overdue until the day it’s paid in full. Interest is calculated at the Bank of England base rate plus 2.5%.

Late payments subject to interest charges

Interest will be charged on all late payments where VAT is due. This includes payments overdue following on from:

  • a VAT Return
  • an amended or corrected VAT Return
  • a VAT assessment made by HMRC
  • a missed VAT payment on account
  • late VAT Return payment penalties
  • late VAT Return submission penalties

How we can help

If you’d like to know more about the changes and how they impact you or your business or any of our services we provide, call us on 01228 904904 or pop us a message at

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