Here is a brief reminder about the various new HMRC changes to VAT penalties and interest charges that will replace the old VAT default surcharge system. HMRC have also made a short video about the changes, watch it here.

HMRC will issue new penalties for VAT returns that are submitted late as well as VAT that is paid late. Interest will also be charged on these payments as well as the amount overdue. 

If you submit your VAT return late

From now on if you submit your VAT return late you will receive penalty points, this includes nil payment returns. For each late return you will receive 1 penalty point. Once you have reached your penalty threshold (see below) you will receive a £200 penalty, followed by a further £200 penalty for each subsequent late submission whilst you are in your threshold.

Accounting period      Penalty points threshold

        Annually                        2

        Quarterly                      4

        Monthly                        5

Visit HMRC's website for an example of how this works with a business making quarterly returns as well as thresholds for businesses that use non-standard accounting periods or make changes to their accounting period here

If you make your VAT payment late

HMRC have advised that late payment penalties, which the sooner you pay the lower the penalty will be, will apply to any payments of VAT not paid in full by the required due date. However, you can request a payment plan known as a Time to Pay arrangement with HMRC if you are struggling to make payments; they suggest you do this as soon as possible. If an arrangement is agreed, it could mean lower or no late payment penalties dependant on your circumstances.

The first late penalty will come into force if your payment is 16 or more days overdue. Followed by a second penalty if your payment is 31 or more days overdue. For example:

                                                                        First late payment        Second late payment

                                                                 penalty                                 penalty

Payment up to 15 days overdue                           None                               None

Payment between 16 & 30 days overdue           2% on the VAT                None

                                                                        owed at day 15 

Payment 31 days or more overdue                     2% on the VAT                 daily rate of 4% per year

                                                                                  Owed at day 15               on the outstanding balance

                                                                                   plus                           

                                                                                  2% of what is still              charged everyday until

                                                                                  outstanding at day         the balance is paid in full

      30

Therefore, in order to avoid a late payment penalty ensure you pay in full by day 15 or arrange a Time to Pay arrangement with HMRC before day 16.

Visit HMRC’s website for more information on late payments here

Late payment interest

HMRC will charge you interest on any late payments from the first day the payment is overdue, this is in addition to the late payment penalty which becomes due if the payment is more than 15 days late. Interest is charged at the Bank of England’s Base rate which is currently 3.5% plus 2.5%. Interest will also be charged on late payment penalties and late submission penalties as explained above.

Visit HMRC’s website for more detailed info here