New VAT Penalties & Interest
From 1st January 2023 we will see the introduction of new late payment penalties and interest rules for VAT.
Late Payment Penalties
There will be two late payment penalties – the first penalty and second penalty.
The first penalty consists of 2% of the VAT unpaid at day 15, followed by a further 2% at day 30.
The second penalty comes into effect from day 31 and is charged daily based on an annual rate of 4% of any outstanding amount.
Any VAT due from periods starting before the 1st January will continue to fall within the default surcharge regime, regardless of when it is paid.
If all outstanding VAT is paid within 15 days (or a Time to Pay arrangement is requested within the same period), no late payment penalty will arise, but there will still be late payment interest applied.
Time to Pay Arrangements
In the new late payment penalty regime, Time to Pay arrangements are treated the same way as a payment when it comes to stopping the clock on penalties. Provided the application is successful, the date which it is first requested is treated as the date of payment and no penalty will arise.
If the terms of that agreement are broken, such as by a missed payment, the first and second penalties will be charged as if no Time to Pay had been in place.
Period of Familiarisation
There will be a soft introduction of these changes this coming year. From 1st January to 31st December 2023 there will be no first penalties charged, giving people the full 30 days to make payment whilst familiarising themselves with the new regime.
Changes to VAT Interest
From the 1st January 2023, the way interest is applied to late payments and repayments will also be changing.
Interest will now be charged from the day a VAT payment becomes overdue, until the date it is paid in full. It will be applied at the Bank of England base rate, plus 2.5%.
The repayment supplement will be replaced by repayment interest for accounting periods beginning on or after the 1st January 2023. The rate for repayment will be much lower than late payment interest, set at the Bank of England base rate minus 1% (subject to a minimum rate of 0.5%).
If you have any questions or concerns about the new regime, don’t hesitate to contact us.
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