For VAT periods beginning on or after 1 January 2023 there is a new method of calculating whether a penalty is due and the amount of the penalty.  The previous default surcharge regime will continue to apply to VAT periods beginning before 1 January 2023.

There is now a points system for late filing (similar to points on a driving licence). A point is incurred for each late filing up to a maximum number of points (the penalty point threshold) that depends on the frequency of returns that are due; there are different thresholds for monthly, quarterly and annual filing.

If you reach the penalty point threshold you must pay a fixed penalty of £200 in respect of the late return that takes you to the threshold.  You stay at the threshold until you submit a consecutive number of returns on time, this number depends on whether you file monthly, quarterly or annually. You must also submit any overdue returns in the previous 24-month period.

As long as you are at the threshold any further late VAT return will incur another £200 penalty.

If you file all the necessary returns on time and file any overdue returns the points total is reset to nought.

If you do not reach the penalty point threshold any points you incur are cancelled after a period of two years (or slightly more in some cases).

You need to be aware of the how the new system could apply to your returns, depending on whether you are a monthly, quarterly or annual filer.


IMPORTANT: The new penalties will also apply to nil and repayment returns.

This is different from the default surcharge regime.  If, in the past, you have been relaxed about late filing because the return is a nil or repayment return you must make sure you can file future returns on time.

Penalties on late payment of VAT

At the same time HMRC is changing the way that penalties apply to the late payment of VAT. These are separate from and additional to the penalties on late filing.

Interest will also be charged on late payment of VAT and penalties.