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HMRC Made Changes on Penalties for Late VAT Returns

December 6, 2022

HMRC has altered the manner in which late VAT returns and payments incur penalties. Beginning January 1, 2023, the default surcharge system will be replaced with two surcharge systems: one for late filings of returns and another for late payments.

The default surcharge system will be replaced with a more equitable one that will allow late taxpayers to opt-in to a new system that is less severe than the previous one. This change is intended to lessen the impact that tax penalties have on businesses.

Simultaneously, they are implementing a new, uniform approach to VAT interest. It’s a point-based system that was introduced for late submissions. It is more lenient if you make the occasional slip-up, but it penalizes those who repeatedly fail to comply.

As the penalty for late payments varies in proportion to the length of time the payment remains unpaid, it's clear that paying as soon as you can will reduce your penalty. This is because the penalty rate is based on how long it takes you to pay, so the less time there's a delay, the smaller your penalty will be.

Interest will be assessed to businesses from the due date of their payment until the day payment is received in full. For Value-Added-Tax (VAT) periods starting on or after January 1, 2023, the repayment supplement will no longer be required. Instead, HMRC is instituting interest payments for taxpayers who submit refund claims.

Payback interest is paid by HMRC and begins accruing on the day after the later of the submission date and the repayment date.

Visit GOV.UK for more details and information about these latest changes.

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