6 March 2022    |    Taxation

VAT penalty changes delayed by HMRC

The first step towards alignment of VAT penalty charges was due to take place from April 2022. The government has announced a nine-month delay. What does this mean for your business?

The VAT default surcharge regime was due to be abolished on 31 March.  The replacement was supposed to be a more favourable vat penalty regime that punishes persistent offenders.  The new regime was not intended to hit those businesses that miss their payment by a few days. But HMRC needs more time to deal with the computer challenges of the new regime. The Treasury has delayed the introduction date by nine months to 1 January 2023.

The new system will not charge you a penalty if you fully pay your VAT within 14 days of the due date. A 2% penalty will then be charged for VAT paid between days 15 and 30, with a further 2% penalty due after 30 days.

Penalty surcharge

But the delay means that you can still incur a default surcharge between 2% and 15% of the late paid tax for being just one day late.  This continues until the end of the year because the existing system will be retained until then. The message is clear: make sure you pay your VAT on time, don’t be even a day late.

With both the current and new systems, you will not be charged a vat penalty or surcharge if you agree a time to pay deal with HMRC before the relevant trigger dates.

Late payment penalty

Although the new system will not charge you a penalty for VAT paid less than 15 days late, it will still charge you interest. Interest is based on an annualised rate which is 2.5% over the Bank of England’s base rate.

The current system does not charge a surcharge or penalty for a late VAT return, only for late payments. That will change on 1 January 2023, with the introduction of a new points-based system for late returns. You should be ready for this change. Somewhat surprisingly, points and penalties will also apply to repayment returns


The information provided is for general information purposes only.

Legislation and details may have changed since this was written.  The text may not include all matters that are relevant to your individual situation.

You should not make decisions, or refrain from making decisions, without taking further professional advice about your specific circumstances.

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