New VAT Penalties coming from 1 January 2023

Nov 4, 2022
Stephen is one of the firm’s tax partners. He specialises in income tax, capital gains tax, corporation tax, inheritance tax, and stamp duty land tax. He also specialises in advising property and construction businesses.
VAT Penalties

What are the new VAT penalties?

From 1st January 2023 a new penalty-based points system will be introduced for all VAT returns that are submitted late or the payment is late. This new system will replace the current default Surcharge.

Nil or repayment returns that are received late will also receive penalty points and financial penalties.


HMRC to introduce 12-month soft landing period for new penalty system

HMRC has confirmed that there will be a soft-landing period of 12 months which means that they will not be charging a first late penalty in the first year, only if the outstanding amount is paid within 30 days of the normal due date – we recommend that our clients DO NOT get into the habit of using this soft-landing period as a means of benefitting cashflow and get into the habit of submitting returns and paying on time for every return.


Further guidance to be introduced in December 2022

HMRC has now published further guidance which can be found here: Sample newsletter – GOV.UK (


New rules are complicated – so don’t get caught out!

What we know so far is that the new rules are complicated, so once again we recommend that all our clients submit their returns and payments on time:

  • For each VAT return submitted late one penalty point will be received
  • Once a threshold has been reached the business will receive a standard £200 penalty
  • A further £200 penalty will be received for each subsequent late submission


Penalty points threshold

Submission frequency  Penalty points threshold Period of compliance
Annually 2 24 months
Quarterly 4 12 months
Monthly 5 6 months


A business can reset their penalty points back to zero by:

  • Submitting returns on or before the due date
  • Making sure all outstanding returns for the last 24 months have been received by HMRC


For late payment penalties the sooner the penalty is paid the LOWER the penalty rate will be.

Up to 15 days overdue – There will be no penalty if the VAT is paid in full or a payment plan is agreed with HMRC

Between 16-30 days overdue – The first penalty is 2% of the VAT owed at day 15 if the outstanding VAT is paid in full, or a payment plan is agreed, between days 16-30.

More than 31 days overdue – The first penalty is 2% of the VAT owed at day 15 plus 2% of the VAT owed at day 30.  A second penalty will be calculated at a daily rate of 4% per year for the duration of the outstanding balance. This is calculated when the outstanding balance is paid in full or a payment plan is agreed.


How can we help?

At Hawsons we have a dedicated team of tax/VAT experts at our offices in Sheffield, Doncaster, and Northampton.

At Hawsons we provide a range of VAT services. Over the past 12 months, we have registered companies, sole proprietors, and partnerships for VAT with HMRC. Using our expertise, we have advised clients whether to register for VAT voluntarily or if they are required to register due to their turnover.

VAT on services is a complicated area. VAT rates may or may not apply depending on who is providing or buying them, where they are provided and the precise nature of the services provided.

Free initial meeting

Stephen Charles

Tax Partner, Sheffield

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