HMRC is introducing a new VAT penalty regime from 1 January 2023, replacing the current default surcharge with a fixed rate, points based system for late VAT submissions and payments. The changes will affect businesses submitting VAT returns for accounting periods starting on or after 1 January 2023 and will also apply to nil returns and repayments.

A single penalty point will be issued for each late submission of a VAT return.  If a business exceeds the points threshold, they will receive a £200 penalty, and a further £200 penalty for each subsequent late submission.  Businesses will be able to reset their points back to zero once all their returns have been filed and there has been a continuous period of good compliance.

The new points thresholds are as follows:

Submission frequency Penalty points threshold  Period of compliance 
 Annually 2 24 months
Quarterly 4 12 months
Monthly 5 6 months

HMRC said there will be a “period of familiarisation” for the first year: “To give you time to get used to the changes, we 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.”

To discuss your own situation contact Cathy Nicholas, Senior Manager, Business Services E: T: 028 9032 3466