How Do Late Penalties Work If You Pay Your VAT Late?


It happens, for one reason or another, there’s always usually a good premise behind late or missed VAT payments. However, it’s important you get to the bottom of how and why this happened to prevent reoccurrence of this situation in the future.

If you have gone over your payment due date by more than 15 days, first and second late payment penalties will apply.

However, do not despair as the sooner you pay the lower the penalty amount will be.

If you are having difficulties you can also propose a payment plan at any time which could mean you receive lower or no penalties.

Speak to your accountant to find out how they can offer support or advice on how to avoid penalties in the future. For now, we’ve provided further details on how late penalties work if you pay your VAT late.  

Accounting periods

For VAT accounting periods starting on or before 31 December 2022 the VAT default surcharge applies. Default surcharge is a civil penalty to encourage businesses to submit their VAT Returns and pay the tax due on time. The surcharge is calculated as a percentage of the VAT that’s unpaid at the due date. You can read guidance about the HMRC default surcharge, when it applies, how it works and how to avoid a VAT surcharge at

For VAT accounting periods starting on or after 1 January 2023, late payment penalties apply to late VAT payments. The VAT default surcharge mentioned above 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.

Important! Your payment will be counted as received by HMRC when it clears their account, not when it’s received in one of their offices.

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 VAT payments on account and/or instalments for the VAT Annual Accounting Scheme.

VAT payments that have late payment penalties:

These can include payments due:

  • on your VAT Return
  • following an amendment to a return or correction
  • from a VAT assessment HMRC issued when you did not submit your return
  • from a VAT assessment HMRC issued for another reason

Struggling to pay your VAT on time?

You will be charged late payment interest by HMRC from the first day your payment is overdue until you make payment in full.

If you are struggling to pay by the deadline of your accounting period, you must let HMRC know as soon as possible. This could prevent more penalty charges being added to VAT you owe.

Time to Pay Arrangement

It is possible to ask HMRC for a payment plan known as a Time to Pay arrangement. This is a flexible way to make payments adapted to the specific financial circumstances of an individual or business.

If your request for a Time to Pay arrangement is agreed by HMRC, it may mean lower, or no, late payment penalties. It can cover all outstanding amounts due, including penalties and interest.

Overview of late payment penalties

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

You can take action to avoid further late payment penalties by making payment in full at any time or by asking HMRC for a Time to Pay arrangement before the cut off for the next penalty charge increase.

If you fail to keep to the conditions of the Time to Pay arrangement, it could be cancelled. If this is the case then HMRC will charge both the first and second late payment penalties as if the arrangement had never existed.

Period of familiarisation

To give you time to get used to the new payment penalty changes, HMRC 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 or make a Time to Pay arrangement.

Is there a way to appeal a late payment penalty?

Yes. HMRC will notify you if you get a late payment penalty in a penalty decision letter. This letter will offer you a review with HMRC. You can appeal against some penalties so that they 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.

Need further help?

Speak to us at Blue Rocket Accounting where our team of experts can help you through the VAT return process and make sure you’re paying the right amount, on time and avoiding any unnecessary late payment penalties. Call us today on 01322 555 442.

For further information, please feel free to download the resource below:

No items found.

Access Exclusive Content

By submitting this form you agree to receive offers and news about our products and services by email.

Privacy Policy
Thanks! Click to download:
No items found.
Oops! Something went wrong while submitting the form.

Thinking of changing your accountant?

Download our free ebook highlighting 10 signs that now is the time to do it

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

We’re honoured to be recognised for our hard work and customer service.

Here are some of the accolades we’ve achieved.

Software Partners

Sage One Certified Advisor
Intuit Quickbooks Gold Pro Advisor
KashFlow Accounting Software