Late Payment Interest on VAT from 1 Jan 2023 – What is Changing?14/01/2023 - 6 minutes read
Late payment interest on VAT payments made after the payment due date will be charged by HMRC from 1 Jan 2023.
HMRC will charge VAT-registered businesses late payment interest on VAT from the first day their payment is overdue until it is paid in full.
For VAT accounting periods starting on or after 1 January 2023, you’ll be charged late payment interest on VAT overdue payments. This is one of several penalty and interest changes that replace the existing VAT default surcharge.
For VAT accounting periods starting on or before 31 December 2022, read the guidance about the VAT default surcharge.
Late payment interest on VAT – What is changing?
Late payment interest on VAT changes means that if you pay VAT-related amounts late, you’ll be asked to pay late payment interest on the amount outstanding, from the first day your payment is overdue to the day you pay it in full.
If the payment is more than 15 days late, you will also be asked to pay a late payment penalty — the sooner you pay, the smaller the penalty will be.
These late payment interest on VAT changes simplify and separate penalties and interest.
How late payment interest on VAT works
Late payment interest on VAT is charged from the first day that the payment is overdue until the day it’s paid in full. It’s calculated at the Bank of England base rate plus 2.5%.
Payments subject to interest
Interest will be charged on all late payments where VAT is due. This includes amounts overdue following:
- – a VAT Return
- – an amendment or correction of a return
- – a VAT assessment made by HMRC
- – a missed VAT payment on account
Late payment interest on VAT will also be charged on all penalties if they are overdue including:
- – late payment penalties for late payment of VAT
- – late submission penalties for not submitting a return on time
Where an amount due is paid in instalments, such as a Time to Pay arrangement, HMRC charges interest on the outstanding balance until you pay the tax in full.
Late payment interest on VAT example
H is VAT-registered and must submit and pay quarterly VAT Returns.
For H’s accounting period running from 1 October 2023 to 31 December 2023, the deadline to submit this return and pay the VAT in full is 7 February 2024.
H submitted the return on time on 7 February 2024, showing VAT owed. H did not make the payment until 14 February 2024, a week later than the payment due date.
H is charged late payment interest for 7 days, from 8 February 2024 up to and including 14 February 2024.
Check your interest charges
Your VAT online account will tell you when you are being charged late payment interest. Sign into your VAT online account to find out how interest has been calculated.
If you cannot pay what you owe on time
If you cannot pay the tax you owe on time you can get help and support. Contact HMRC as soon as possible if you:
- – have missed a tax deadline
- – know you will not be able to pay a tax bill on time
Call the Payment Support Service if you cannot pay in full before the deadline.
Repayment interest on VAT credits or overpayments
Repayment interest is paid at the Bank of England base rate minus 1%, with a minimum rate of 0.5%.
When you’re not eligible for repayment interest
HMRC will not pay repayment interest if you have any outstanding VAT returns. It will be paid from the date that HMRC receives the last outstanding VAT return.
Start date for VAT repayment interest
When HMRC starts calculating repayment interest depends on whether we’re repaying an amount you’ve:
- – already paid to HMRC
- – not paid and is shown as credit owed to you on a VAT return or a claim
If you’ve already paid the VAT to HMRC
Repayment interest is calculated from the day after the latter of these two dates:
- – when you paid the VAT to HMRC
- – the deadline for your accounting period
If you’ve not paid the VAT to HMRC
Repayment interest starts on the day after the latter of these two dates:
- – the deadline for your accounting period
- – when you submitted the VAT return or claim
Late payment interest on VAT – How can MCL Accountants help?
Contact MCL Accountants on 01702 593 029 if you have any queries about late payment interest on VAT or if you need any assistance with the preparation and submission of your business accounts or self-assessment tax returns to HMRC.