HMRC New VAT Penalties

HMRC Brings In New VAT Penalties for Businesses

HM Revenue and Customs (HMRC) is urging VAT registered businesses to file their tax returns and make payments on time, or face the new penalties that are being enforced.

To promote justice and equity in the business world, they have crafted new punishments that are appropriate for those who submit their VAT returns late or fail to pay their VAT on time.

If you fail to file a return or repayment on time, businesses will now have to face newly-imposed consequences. Furthermore, HMRC has outlined changes in the calculation of interest rates for late returns.

What Are The Changes to VAT Penalties?

Beginning on March 7, 2023, the initial monthly payments and returns affected by penalties will be due. From January 1, the points-based late submission fees and late payment charges superseded the VAT default surcharge for accounting periods initiated after then.

Two crucial alterations have come into effect, namely:

Late Submission Penalties – Entities that fail to submit their VAT return on time will accumulate penalty points; once the predetermined threshold is reached, a £200 fee for non-compliance is imposed.

Late Payment Penalties – When VAT payments are overdue by fifteen days or more, the first late payment penalty must be paid. However, if your VAT Payment is past due by thirty days or longer, the first fee will be assessed and increased, and an additional second late penalty applied.

Could Payment Plans Be An Option to Help Business?

The answer is yes. If a business is unable to fully pay their VAT bill, HMRC can or may assist by establishing an instalment plan with the business that enables the customer to comfortably manage their debt. When customers submit and obtain approval for a reasonable payment arrangement within fifteen days of when it was due, no late fees will be charged.

Though, if a payment plan is proposed past the first fifteen days, late-payment fees may be imposed. However, with an accepted and agreed upon payment plan in place, these charges can remain low and be prevented from increasing further.

It is also key to note that HMRC has made additional modifications to the current regulations by introducing both late payment and repayment interest that will substitute for prior VAT interest guidelines. In doing this, HMRC is bringing its new regime in line with all other taxes.

Why Would the HMRC Appoint These Changes?

These new sets of regulations are likely to have been put in place to ensure that all businesses remain compliant with their VAT requirements, which in turn will help create a fairer system for all parties involved and will encourage businesses to fulfil their financial obligations in an accountable and timely manner.

The changes could also have been introduced to give HMRC greater control over late returns and payments, which reduces the risk of non-compliance across the board. Furthermore, it establishes a level playing field between those who submit their taxes on time and those who do not. Identifying areas of improvement in efficiency is essential to ensure more successful operations in the future.

With the implementation of these penalties now in effect, HMRC has made it clear that disregarding deadlines or avoiding repayments is no longer acceptable behaviour; if found guilty of such practices you can face charges and surcharges.

What Can Businesses Do to Avoid Penalties?

To avoid being subject to any of these penalties, businesses should make sure that they submit their VAT return and pay their due taxes on time. A few tips for staying up-to-date are:

  1. Set reminders – Businesses can leverage various methods such as calendar alerts or other automated tools to remind them about upcoming payment deadlines.
  2. Get organised – Keeping a record of all your VAT invoices and payments will help you stay on track when it comes to filing returns and making payments. 
  3. Don’t wait until the last minute – Filing online is easier and quicker than traditional paper returns, so there is no need to wait until the deadline approaches to file returns or make payments.

Are There Any Exceptions Regarding Penalties?

There are instances in which penalties will not be applied. These will generally apply within the late submission area. You will not face any late submission penalties if you:

  1. Are a newly registered business –  If you are an upcoming and newly registered business that is submitting their first ever VAT return, then an exemption on any penalties will be made.
  2. Have closed your business – If a business cancels their VAT registration due to closure, then again no penalty fee will be applied to the final VAT return.
  3. Submit a one-off return –  A one-off return is a VAT return that covers a period other than a month, quarter or year. As these are generally isolated returns, they will not incur any penalty fees.


It is good to be fully aware of the new HMRC imposed regulations and penalties on businesses that are late in submitting their VAT returns. Businesses should take note of these changes and take appropriate steps to ensure they don’t miss any deadlines or payments that could result in penalties or interest surcharges.

However, there are instances where HMRC recognises and makes some exceptions, such as when a business is newly-registered, closing down or making a one-off return. It’s vital that businesses familiarise themselves with how the penalties work and keep up-to-date with these changes and any new regulations that could be further introduced.

By doing so, it will help them to proactively and efficiently manage their VAT returns and payments, and successfully avoid any penalties that could result from not doing so, keeping additional and unnecessary business costs down!

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