To make sure you don’t get caught out by the new rules (or forget about the current ones!), we’ll go through both. Brand new to VAT?
What is the current penalty for late VAT submissions and payments?
Until the new rules kick in from January 2023, HMRC will record a ‘default’ if you don’t submit your VAT return or pay your VAT bill on time before the deadline passes. The penalty (known as a surcharge) that you pay is a percentage of how much VAT you owe for that VAT period.
You won’t receive a penalty if it’s the first time that you default, but you may enter a 12-month surcharge period. This is a bit like being on probation, and defaulting again during the surcharge period will increase the rate of the penalty each time you default. Each default also extends the 12-month surcharge period by a further 12 months.
The amount depends on your annual turnover, and how many times you default.
| How many times you default within 12 months | Surcharge rate if your annual turnover is less than £150,000 | Surcharge rate if annual turnover is £150,000 or more |
| 1st | No surcharge | No surcharge |
| 2nd | No surcharge | 2% (but no surcharge if this is less than £400) |
| 3rd | 2% (but no surcharge if this is less than £400) | 5% (no surcharge if this is less than £400) |
| 4th | 5% (no surcharge if this is less than £400) | 10% or £30 (whichever is more) |
| 5th | 10% or £30 (whichever is more) | 15% or £30 (whichever is more) |
| 6th | 15% or £30 (whichever is more) | 15% or £30 (whichever is more) |
You can receive a VAT penalty for other reasons too:
- 100% of under-stated or over-claimed tax if you send a VAT return with careless or deliberate errors.
- 30% if HMRC send a VAT assessment which is too low, and you don’t tell them it’s wrong within 30 days
- £400 if you submit a paper VAT return without HMRC’s permission to be exempt from doing so
The VAT penalty points system from 1st January 2023
The current process will be replaced by a new points-based penalty system for VAT. It will apply to MTD VAT submissions for periods starting on or after 1st January 2023.
Late VAT submissions will accrue one penalty point each. If you receive enough points to reach the penalty threshold, you’ll be charged a £200 penalty.
The points threshold depends on how often you’re required to make submissions (which can depend on which VAT accounting scheme you are on).
| How often do you make a VAT submission? | How many points you will receive before reaching the penalty threshold |
| Annually | 2 points |
| Quarterly | 4 points |
| Monthly | 5 points |
Will I be fined if I’m late paying my MTD VAT bill?
The short answer is yes, from January 2023 HMRC will continue to fine taxpayers who don’t pay their VAT bill on time, as well as issuing penalties for not meeting the submission deadline. The penalty amount that you’ll be charged depends on how many days overdue you are paying the bill.
| How many days after the due date you pay your VAT bill | The penalty charge |
| 0-15 days | You will not receive a penalty |
| 16-29 days | 2% of the amount outstanding |
| 30 days | 2% of the tax outstanding at day 15, plus 2% of the tax outstanding at day 30 |
| 31 days or more | 4 % of the amount owed, calculated daily until you pay the amount you owe |
What if I can’t pay my VAT bill on time?
Whilst you won’t receive a penalty for the first 15 days after the payment deadline, it’s never a good idea to have a history of late payments on your account. Rather than risking non-compliance, contact HMRC’s Payment Support Service to make a ‘Time to Pay’ arrangement.
The Time to Pay scheme allows you to agree an instalment plan with HMRC, taking into account other bills and spending you need to consider each month.
Learn more about our online accounting services for VAT, contact the team for a chat on 0208 133 4599, or get an instant online quote.
