In January 2023, the UK government introduced the new VAT default surcharge regime, which is frequently referred to as a penalty points system.
This new system has separate penalties for late VAT return submissions – and also for late VAT payments. The new system also calculates interest differently.
For every failed filing deadline, HMRC will issue 1 point to the taxpayer. This includes any nil submission.
Once you hit a certain number of points, you’ll be issued with a penalty fee of £200.
The points threshold are shown below
| Submission Type | Points Threshold |
|---|---|
| Monthly Returns | 5 points |
| Quarterly Returns | 4 points |
| Annual Returns | 2 points |
For example, if your quarterly returns are late 3 times during the year, you’d receive 3 points. One further point for any late submission or payment, and you’ll hit the threshold.
Points do expire after a set period of time. These are assessed by the period of good compliance with the tax system (i.e. submitting on time and paying on time).
Late payment penalties
With this new system, both fixed penalties (above) and daily penalties will apply. The later your payment is received by HMRC, the higher the charge.
- Up to 15 days late
These will not attract a penalty - 16 – 30 days late
A penalty of 2% will apply to any amount outstanding. This will not start taking effect until 2024 - 31 days or more
A penalty of 2% will apply based on the amount which was outstanding on day 15, plus an additional penalty of 2% abased on the amount outstanding on day 31. (i.e. if no payments have been made, a full 4% will apply)
In addition, a daily penalty will be charged and interest continues on the overdue tax amount – calculated on the Bank of England’s base rate plus 2.5%