New VAT penalty rules for 2023.

For VAT return periods starting on or after 1st January 2023 HMRC have introduced a new VAT penalty regime, replacing the current VAT surcharge scheme for late payment and submission of VAT returns.


How it works


The new scheme is rather complicated (as you may expect!) and is a points based scheme. One point is issued each time a VAT return is either submitted late or paid late. This is regardless of whether a refund is due or the return is a nil return.


Working on the basis you submit VAT returns quarterly (there are different rules for annual and monthly VAT returns) you need to collect 4 penalty points before any penalties are triggered.


What are the penalties


Once you have collected 4 points you will then be charged £200 for late submission and/or payment of your VAT return. As long as you remain on 4 penalty points you will be charged £200 every time you are late submitting or paying a VAT return.


When are points removed


If you haven’t reached the penalty threshold (4 points for quarterly returns) and your return was due on 7th of the month — a penalty point expires on the last day of the month, 24 months after your last late return.


Therefore once you have a penalty point it will be with you for just over 2 years!


If you have reached the threshold of 4 points, the rules are different.


You need to complete a period of compliance submitting all returns on time for 12 months. The start date for this will be 1st of the month after your return was due. For example if your return was due by 7th July then your 12 month compliance period starts from 1st August.


In addition to this any returns that were outstanding at the start of this period need to be submitted by the end of the 12 month period. So by the end of the 12 month compliance period all historic VAT returns must be up to date with HMRC.


If these conditions are met the all 4 points are removed and a business will revert to having no penalty points on its record.




Although complicated at first sight the new scheme does appear to be more lenient on penalties for a business as the penalty is flat rate charge of £200. The current system charges various percentages of the VAT due for late submissions, which often in our experience far exceed a £200 penalty.






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