The new penalty regime for late payment of VAT is fairer to those who miss the VAT payment deadline by a few days.
For VAT due in relation to periods beginning on and after 1 January 2023, you will have up to 15 days to pay or arrange a time-to-pay agreement without incurring a penalty. For the first year of this new system, you will have 30 days to pay the VAT liability in full instead of 15 days.
From 2024 onwards the new late payment penalties will be applied in two parts:
- 2% of the VAT unpaid at day 15; and
- a further 2% of the VAT unpaid at day 30
If the payment is made after day 30, the first penalty will be 4% of the amount due. However, if full payment is made between days 15 and 30, this first penalty will be set at 2%.
From day 31 the penalty is charged daily based on an annual rate of 4% of any outstanding amount.
The rate of interest applied for late payments of VAT will be the Bank of England base rate plus 2.5%. Interest will be paid on repayments at the Bank of England base rate minus 1%, subject to a minimum rate of 0.5%.
There is no carry forward of default periods or surcharge levels from the old VAT penalty system into the new late filing or late payment penalty regimes.