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Changes to VAT penalties and interest charges

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From 1 January 2023, HMRC are changing the way penalties are issued for late VAT return submissions and late payments. This will affect all VAT registered businesses who submit any returns or make any late payments.

What’s new?

  • The new regime could result in a penalty for both the late submission of VAT returns and the late payment of the VAT liability. This is significantly different from the old system.
  • Late submission penalties will be charged on a points-based system. The idea of a points-based system is that it will be more lenient for those who occasionally slip-up, whilst still penalising those who repeatedly submit late. Once a points threshold has been reached, a business will receive a £200 penalty for each VAT return submitted late until the points have been cancelled.
  • Late submission penalties will apply to the submission of nil and repayment VAT returns.
  • Late payment penalties will be charged at different rates based on when your payment is received. This means the penalty is more proportionate to the length of time a payment is outstanding – the sooner you pay, the lower the penalty.​
  • HMRC is also introducing late payment interest, which means that you’ll be charged interest from the date your payment is overdue, until the date you pay in full.

Interest will be calculated at the Bank of England base rate plus 2.5%.

  • HMRC is discontinuing repayment supplement and instead will be introducing repayment interest. Businesses who make a repayment claim will receive repayment interest from the day after the due date, or the date of the submission (whichever is later), to the date the repayment is made to you.

Light touch period

To allow businesses time to get use to these changes, HMRC will not be charging a first late payment penalty for the first year from 1 January 2023 until 31 December 2023, if you pay in full within 30 days of your payment due date.

If you are having difficulty in submitting your VAT returns on time, please get in touch with our VAT Team (, who will be able to provide assistance.