Making Tax Digital (MTD) for VAT is in full swing, and HMRC will soon launch a new system for issuing VAT submission and payment penalties.
Will I be fined if I’m late submitting my VAT return or paying the bill?
The new points-based penalty system won’t launch until January 2023, so until then HMRC will record a default if you don’t submit your VAT return on time, or if you miss the payment deadline.
They’ll issue you with a penalty surcharge as a percentage of what you owe for that VAT period, which you must pay in addition to your actual VAT bill.
You’ll enter a 12-month period, known as a surcharge period, which will be extended by a further 12 months if you default again. The surcharge rate increases each time you default within a 12-month period, with the actual amount dependant on you annual turnover.
| How many times you default within 12 months | Surcharge rate if your annual turnover is less than £150,000 | Surcharge rate if annual turnover is £150,000 or more |
| 1st | No surcharge | No surcharge |
| 2nd | No surcharge | 2% (no surcharge if this is less than £400) |
| 3rd | 2% (no surcharge if this is less than £400) | 5% (no surcharge if this is less than £400) |
| 4th | 5% (no surcharge if this is less than £400) | 10% or £30 (whichever is more) |
| 5th | 10% or £30 (whichever is more) | 15% or £30 (whichever is more) |
| 6 or more | 15% or £30 (whichever is more) | 15% or £30 (whichever is more) |
You might also receive a penalty if you accidentally or deliberately submit a VAT return which under-states or over-claims VAT. There’s also a 30% VAT penalty if you don’t tell HMRC about a VAT assessment which is too low within 30 days, and a £400 fine for sending a paper VAT return without permission.
The MTD VAT points-based penalty system from 1st January 2023
The existing rules will be replaced in January 2023 when HMRC’s new points-based system comes into effect. Under the new rules, missing the VAT submission deadline will accrue one penalty point each time. Each penalty point is valid for two years, and you’ll receive a fine each time you reach the penalty threshold.
The VAT penalty points threshold is different depending on how often you need to make VAT submissions in the VAT accounting scheme you register to.
| How often do you make a VAT submission? | How many points you will receive before reaching the penalty threshold |
| Annually | 2 points |
| Quarterly | 4 points |
| Monthly | 5 points |
Will I be fined if I’m late paying my MTD VAT bill?
Yes, as well as penalties for VAT-registered businesses who miss their VAT submission deadline, there are fines for those that don’t pay their bill on time. The penalty is based on how late you are paying your VAT bill.
| How many days after the due date you pay your VAT bill | The penalty charge |
| 0-15 days | No penalty |
| 16-29 days | 2% of the amount outstanding |
| 30 days | 2% of the tax outstanding at day 15, plus 2% of the tax outstanding at day 30 |
| 31 days or more | 4% of the amount owed, calculated daily until you pay it all off |
What if I can’t pay my VAT bill on time?
Rather than ignoring it and hoping it goes away (it won’t), you should contact HMRC to make a ‘Time to Pay’ arrangement. This is an instalment plan which, as the name suggests, allows you to agree a repayment period. There’s no set length as to how long the repayment period will be – it depends on how much you owe, and what you can afford to pay (taking into account other spending you might need to worry about).
Make sure you have your VAT reference number handy, as well as the details of what you owe and other outgoings when you make the call.
Find out more about our MTD for VAT software, and create your free account today.
