For VAT accounting periods starting on or after 1 January 2023, late payment penalties apply to late VAT payments.
The VAT default surcharge is being replaced by new penalties for VAT which is paid late and VAT Returns that are submitted late. The way interest is charged is also changing.
These changes affect everyone who submits returns, including a nil or repayment return. For VAT accounting periods starting on or before 31 December 2022, read guidance about the VAT default surcharge.
How late payment penalties work
Late payment penalties can apply to any payments of VAT not paid in full by the relevant due date except:
For late payment penalties, the sooner you pay the lower the penalty amount will be.
You can propose a payment plan at any time which could mean you receive lower or no penalties.
Which VAT payments have late payment penalties
This can include payment due:
- on your VAT Return
- following an amendment to a return or correction
- from a VAT assessment we issued when you did not submit your return
- from a VAT assessment we issued for another reason
If you cannot pay your VAT on time
From the first day your payment is overdue, until you pay in full, we’ll charge late payment interest.
You should contact HMRC as soon as possible if you’re having difficulty paying by the deadline for your accounting period. This may stop more penalty charges and interest being added to VAT you owe.
Ask if you can pay in instalments
You can ask HMRC for a payment plan known as a Time to Pay arrangement.
A Time to Pay arrangement is flexible and is adapted to the specific financial circumstances of an individual or business.
If HMRC agree a Time to Pay arrangement with you, it can mean lower, or no, late payment penalties. It can cover all outstanding amounts due, including penalties and interest.
Contact the Payment Support Service to discuss your finances and the amount you can pay each month towards the VAT you owe.
Summary of late payment penalties
You’ll get a first late payment penalty if your payment is 16 or more days overdue.
When your payment is 31 or more days overdue, you get a larger first late payment penalty, and a second late payment penalty.
| First late payment penalty | Second late payment penalty | |
|---|---|---|
| Payment up to 15 days overdue | None | None |
| Payment between 16 and 30 days overdue | Calculated at 2% on the VAT you owe at day 15. | None |
| Payment 31 days or more overdue | Calculated at:
• 2% of what was outstanding at day 15 • plus 2% of what is still outstanding at day 30 |
Calculated at
•a daily rate of 4% per year on the outstanding balance •charged everyday from day 31 until the outstanding balance is paid in full |
Take action to avoid further late payment penalties
Between days 1 and 15 overdue
To avoid penalties that will apply from day 16 you should:
- pay in full
- arrange a Time to Pay on or between days 1 and 15
Between day 16 and 30 overdue
To avoid higher penalties that will apply from day 31 you should:
- pay in full
- agree a Time to Pay (or part pay) on or up to day 30
On or after day 31 overdue
To stop your second late payment penalty and interest increasing you should:
- pay in full
- arrange a Time to Pay on or after day 31
Period of familiarisation
To give you time to get used to the changes, we will not be charging a first late payment penalty until after 31 December 2023. This is provided that, within 30 days of your payment due date, you either:
- pay in full
- make a Time to Pay arrangement
If you do not keep to a Time to Pay arrangement
If you do not keep to the conditions of the Time to Pay arrangement at any point, it may be cancelled. If this happens HMRC would charge both first and second late payment penalties as if the Time to Pay arrangement never existed.
Appeal a late payment penalty
If you get a late payment penalty, HMRC will tell you in a penalty decision letter. The letter will offer you a review with HMRC.
Find out how and when you can appeal against a penalty.
You can choose a review or appeal to the tax tribunal.
Your penalty may be cancelled or amended if you have a reasonable excuse.
Check and appeal penalties online
You can check details of penalties in your VAT online account and ask for a review through your online account.
If you cannot use your online account you can write to this address to ask for a review. You do not need to include a street name, city name or PO box:
Solicitor’s Office and Legal Services
HMRC
BX9 1ZT
Late payment penalty example
Find video examples in recorded webinar Overview of new VAT penalties and interest charges.
This example includes late payment scenarios that occur after the period of familiarisation.
A company is a VAT registered retailer that has submitted their June 2024 return by the deadline for their reporting period. But HMRC does not receive the £15,000 VAT they owe on time.
Payment is up to 15 days overdue
HMRC sends the company a late payment reminder letter asking them to pay in full to avoid penalties. They settle their VAT bill in full by the end of day 15 so they do not get a late payment penalty.
Payment is between 16 and 30 days overdue
The company makes full payment between day 16 and day 30 after the VAT is due. The first late payment penalty is calculated at 2% of the VAT that was outstanding at the end of the day 15.
HMRC charges a first late payment penalty of 2% of £15,000 = £300
Payment is 31 days or more overdue
The company pays the VAT they owe 51 days after the date it is due.
HMRC charges a first late payment penalty of £600, calculated at:
-
2% of the amount outstanding at day 15 (2% of £15,000 = £300)
-
2% of the amount outstanding at day 30 (2% of £15,000 = £300)
HMRC also charges a second late payment penalty calculated daily at an annual rate equivalent to 4% on the outstanding amount of £15,000.
HMRC charges 4% from day 31 of the payment being overdue up to and including day 51 when the company pays in full.
This works out as 21 days (£15,000 x 4% x 21/365 days) = £34.50
The total penalty that the company is charged for paying 51 days late is £634.50 from the:
