HM Revenue and Customs (HMRC) is reminding Value Added Tax (VAT) registered businesses to file their VAT returns and pay on time, ahead of new penalties being applied.

The new penalties will be fairer and more proportionate for businesses who submit their VAT returns or pay their VAT late. The first monthly returns and payments affected by the penalties are due by 7 March 2023.

The late payment penalties and points-based late submission penalties were introduced from 1 January 2023, replacing the VAT default surcharge, and apply to accounting periods which start after that date.

The penalties for late VAT returns also apply to businesses that submit nil returns and repayment returns. Changes have also been made to how interest is calculated.

Paul Riley, director of Tax Administration, HMRC, said:

“Our aim is to help customers get things right before monetary penalties are applied; a points-based system for late VAT returns will not punish the occasional error.

“We are contacting 2.5 million VAT registered businesses about the changes and will continue to support customers to help them manage their tax affairs and payments.”

The changes to VAT penalties and interest payments are:

• Late submission penalties – These work on a points-based system. For each VAT return submitted late, customers will receive a penalty point until they reach the penalty point threshold – at which stage they will receive a £200 penalty. A further £200 penalty will also apply for each subsequent late submission while at the threshold, which varies to take account of monthly, quarterly and annual accounting periods.

• Late payment penalties – If a VAT payment is more than 15 days overdue, businesses will pay a first late payment penalty. If the VAT payment is more than 30 days overdue, the first late payment penalty increases and a second late payment penalty will also apply. To help customers get used to the changes HMRC will not charge a first late payment penalty on VAT payments due on or before 31 December 2023, if businesses either pay in full or a payment plan is agreed within 30 days of the payment due date.

• Payment plans – HMRC will help businesses that cannot pay their VAT bill in full. Customers may be able to set up a payment plan to pay their bill in instalments. After 31 December 2023, if a customer proposes a payment plan within 15 days of payment being due and HMRC agrees it, they would not be charged a late payment penalty, provided that they keep to the conditions of the payment plan. Late payment penalties can apply where proposals are made after the first 15 days, but the agreement of the payment plan can prevent them increasing.

• Interest calculations – HMRC has introduced both late payment and repayment interest, which will replace previous VAT interest rules. This brings the new regime in line with other taxes.

Further details on the changes can be found on GOV.UK.

HMRC is also reminding businesses to be mindful of scams as they adjust to the changes. Never share your HMRC login details. Someone using them could steal from you or make a fraudulent claim in your name. Never give out personal information if you are unsure of who is contacting you. For more information, go to GOV.UK and search for ‘phishing and scams’.