Introduction to New VAT Late Payment Penalties

Let’s face it – nobody likes to be late, especially when it comes to paying taxes. And from 1st January 2023, His Majesty’s Revenue and Customs (HMRC) has implemented new rules to ensure you feel the same. If you’re a VAT-registered business, you will be charged late payment interest from the very first day your payment is overdue until it’s paid in full.

Before we get stuck into the article, it is always recommended that you speak with an accountant or tax professional for advice. We are here to help. You don’t have to navigate the minefield of tax alone. Reach out to us via our contact forms throughout the website and one of our accountants will lend you a hand.

Change Overview

But what does this change mean for you? Essentially, this new measure is one of several changes that replace the previous VAT default surcharge. The changes are intended to simplify penalties and interest, ensuring businesses are accountable for their VAT obligations. It separates the penalties and interest, making the system more transparent for businesses.

Importance of Timely VAT Payment

Ever wondered why timely VAT payments are so crucial? The VAT system is an integral part of the country’s financial framework. Your timely payments enable the government to fund essential public services. So, when you’re late, it’s not just a case of a missed deadline – it can have wider implications for the whole economy.

Specifics of the Late Payment Interest

The nitty-gritty of the late payment interest lies in its calculation. It’s charged from the very first day that your payment is overdue and continues until it’s paid in full. The rate? It’s the Bank of England base rate plus 2.5%.

Payments Subject to Interest

You might be asking yourself, “What payments are subject to this interest?” Well, any late payment where VAT is due will have interest charged. This includes unpaid sums from VAT Returns, adjustments or rectifications to a return, VAT evaluations conducted by HMRC, or a missed VAT payment on account.

Overdue VAT Returns

Late returns can lead to unexpected interest charges. To prevent this, always make sure to submit your VAT returns on time. If you need help with submitting returns then head on over to our VAT services page, complete the contact form and an egar accountant will happily help you get up to date!

Late Payment Penalties

Not just late payments, even late penalties for non-submission of a return on time can attract interest. Remember, when it comes to HMRC, timely submission and payment are key!

Impact of Late Payments

Wondering how this impacts you in real terms? Let’s look at a case study to clarify

Case Study: The Scenario of ‘M’

‘M’ is a VAT-registered business that is required to submit and pay quarterly VAT Returns. For the accounting period from 1 October 2023 to 31 December 2023, the deadline to submit the return and pay the VAT in full was 7 February 2024. However, ‘M’ only made the payment on 14 February 2024, seven days after the due date. As a result, ‘M’ was charged late payment interest for these seven days.

Checking Your Interest Charges

Now you might be wondering, “Where do I find information about these interest charges?” Your VAT online account will provide all the necessary details. You can sign in to see how the interest has been calculated.

What to do if you can’t pay on time

Life is unpredictable, and sometimes, you may not be able to pay your VAT on time. If you find yourself in this situation, don’t panic. HMRC has support systems in place.

Support Systems and Contacting HMRC

In case of financial difficulty, you are advised to contact HMRC as soon as possible if you have missed a tax deadline or anticipate not being able to pay your tax bill on time. The Payment Support Service is there to help you, so make sure to reach out before the payment deadline.


With the introduction of late payment interest on VAT, the importance of punctuality in tax matters has been amplified. Understanding the changes and the implications for late payments is essential for VAT-registered businesses. Keep on top of your obligations, and remember – the sooner you pay, the smaller the penalty will be! As always, if you need support in anyway, just reach out to us and we will be happy to talk you through everyhting you need to know. If you believe you could benefit from having an accountnat file your VAT returns for you, head over to our VAT Services page to learn how we can help.


Q: When did the new VAT late payment interest rules come into effect?

A: From 1st January 2023, HMRC started charging late payment interest on overdue VAT payments.

Q: How is late payment interest calculated?

A: The late payment interest is calculated based on the Bank of England base rate plus 2.5%.

Q: Are late penalties for non-submission of a return also subject to interest?

A: Yes, interest is charged on all overdue penalties, including those for late submission of returns.

Q: What should I do if I can’t pay my VAT on time?

A: You should contact HMRC as soon as possible and before the payment deadline if you can’t pay on time.

Q: Where can I check my interest charges?

A: You can check your interest charges in your VAT online account.