New VAT late-payment penalties

Mar 10, 2023

In addition to the new penalties for late VAT returns, there is also a new system of penalties for late paid VAT.

For VAT periods beginning on and after 1 January 2023 you will have up to 15 days to pay your VAT – or arrange a time to pay agreement – before HMRC charge a penalty. In 2023 this 15-day grace period will be stretched to 30 days while traders get used to the new system.

From 2024 onwards the penalties are calculated as 2% of the unpaid VAT at day 15 and a further 2% of the unpaid VAT at day 30. If no payment is made until after day 30 the first penalty will be 4% of the amount due. However, if full payment is made between days 15 and 30 the first penalty will be set at 2%.

From day 31 another penalty is charged daily based on an annual rate of 4% of any outstanding VAT due.

In addition to the penalties charged for paying late, interest is charged on any late payment at the Bank of England base rate plus 2.5% (so currently 6.5%). If you are due a VAT repayment which HMRC does not pay on time you will receive repayment interest at the Bank of England base rate minus 1% (currently 3%).

This is a much fairer system than the old VAT default surcharges which could see traders hit with penalties of up to 15% of the late paid VAT for paying just one day late. There is no carry forward of default periods or surcharge levels from the old VAT penalty system into the new late-payment regime.

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