HMRC intends to make adjustments to the VAT penalty system now that Making Tax Digital (MTD) for VAT is fully implemented for VAT-registered businesses. The new regulations will align the late submission and late payment penalties for VAT with those for income tax and corporation tax.
The new MTD for VAT penalty system will apply from January 2023, but there is an existing penalty scheme in place.
What is the current penalty for late VAT submissions and payments?
If you don’t submit your VAT return or pay your VAT bill in full before the deadline before the new regulations take effect in January 2023, HMRC will record a “default.” You must pay a penalty (sometimes referred to as a surcharge) that is based on the amount of VAT you owe for that VAT period.
If it’s your first default, you won’t be penalised, but you might be subject to a 12-month surcharge period. Similar to being on probation, if you default once more during the surcharge term, the rate of the penalty will rise. Each default also adds another 12 months to the 12-month fee term.
The sum is determined by your annual turnover and the number of defaults.
| How many times you default within 12 months | Surcharge rate if your annual turnover is less than £150,000 | Surcharge rate if annual turnover is £150,000 or more |
| 1st | No surcharge | No surcharge |
| 2nd | No surcharge | 2% (but no surcharge if this is less than £400) |
| 3rd | 2% (but no surcharge if this is less than £400) | 5% (no surcharge if this is less than £400) |
| 4th | 5% (no surcharge if this is less than £400) | 10% or £30 (whichever is more) |
| 5th | 10% or £30 (whichever is more) | 15% or £30 (whichever is more) |
| 6th | 15% or £30 (whichever is more) | 15% or £30 (whichever is more) |
The VAT penalty points system from 1st January 2023
A new VAT penalty system based on points will replace the current procedure. It will be applicable for periods beginning on or after January 1, 2023, for MTD VAT filings.
Each penalty point for a late VAT submission is one. You will be assessed a £200 penalty if your point total rises to the required level.
Depending on how frequently you must submit, the points need may change (which can depend on which VAT accounting scheme you are on).
| How often do you make a VAT submission? | How many points you will receive before reaching the penalty threshold |
| Annually | 2 points |
| Quarterly | 4 points |
| Monthly | 5 points |
Will I be fined if I’m late paying my MTD VAT bill?
Yes, HMRC will continue to penalise taxpayers who don’t pay their VAT bills on time starting in January 2023, and it will also impose penalties for missing the submission date. Depending on how many days the bill is past due, you will be assessed a penalty.
| How many days after the due date you pay your VAT bill | The penalty charge |
| 0-15 days | You will not receive a penalty |
| 16-29 days | 2% of the amount outstanding |
| 30 days | 2% of the tax outstanding at day 15, plus 2% of the tax outstanding at day 30 |
| 31 days or more | 4 % of the amount owed, calculated daily until you pay the amount you owe |
You can receive a VAT penalty for other reasons too:
- 100% of under-stated or over-claimed tax if you send a VAT return with careless or deliberate errors.
- 30% if HMRC send a VAT assessment which is too low, and you don’t tell them it’s wrong within 30 days
- £400 if you submit a paper VAT return without HMRC’s permission to be exempt from doing so
