VAT penalties for late filing or payments – be aware of the changes

HM Revenue & Customs (HMRC) has removed the default surcharge for late payments of VAT and replaced it with what is a new penalty charge. The way interest is charged has also been amended.

Previously, the default surcharge was two per cent of the VAT outstanding at the due date but would increase progressively to five per cent, 10 per cent, and 15 per cent for further payment defaults in a surcharge.

New penalties for late payment of VAT

As of 1 January 2023, this surcharge was removed and replaced with a new set of penalties. You will now only receive a penalty if your payment is 16 days or more overdue.

If the payment is between 16 and 30 days overdue, the payment penalty is calculated at two per cent of the VAT you owe on day 15, similar to the previous surcharge.

However, the progressively higher percentage increments seen in the previous surcharge have gone.

Instead, if your payment is 31 days or more overdue, the payment penalty is another two per cent of what was outstanding on day 15, plus two per cent of what is still outstanding on day 30.

Further penalties for later payments

Additionally, a second late payment penalty is incurred for going over 31 days overdue. This is calculated at four per cent per year on the outstanding balance and charged every day from day 31 until the outstanding balance is paid in full.

While the charges are more severe on late payments, it should encourage businesses to ensure VAT is paid on time.

It also softens the penalties for being overdue by a smaller window than was the case with the previous default surcharge.

If you require any help with paying VAT, please contact us today.