New VAT late payment penalties

VAT penalties

The old system of VAT default surcharges could be quite harsh, as a penalty of up to
15% of the late paid VAT could be levied for paying just one day late.

The new system, that applies for VAT periods beginning on or after 1 January 2023, is fairer to those who miss the VAT payment deadline by a few days.

You will have up to 15 days to pay your VAT, or arrange a “Time to Pay” agreement, without incurring a penalty. In 2023, this 15-day grace period is extended to 30 days. At day 30, a penalty will be charged at 2% of the unpaid VAT at that time.

From day 31 another penalty is charged daily, based on an annual rate of 4% of any outstanding VAT due. In addition to the penalty for paying late, interest is charged on any late payment at (currently) 6.5% p.a.

If you are due a VAT repayment that HMRC does not pay on time. You will receive repayment interest at 3% at the moment.

There is no carry forward of default periods or surcharge levels from the old VAT penalty system into the new regime. Which is very good news!