Late payment interest if you do not pay VAT or penalties on time
For VAT accounting periods starting on or after 1 January 2023, you’ll be charged late payment interest on 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 guidance about the VAT default surcharge.
What is changing
The changes mean 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 changes simplify and separate penalties and interest.
How late payment interest works
Late payment interest 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
Interest 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 example
D is VAT-registered and must submit and pay quarterly VAT Returns.
For D’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.
D submitted the return on time on 7 February 2024, showing £8,340 VAT owed. D did not make the payment until 14 February 2024, a week later than the payment due date.
D is charged late payment interest on £8,340 for 7 days, from 8 February 2024 up to and including 14 February 2024.
For this example, the Bank of England base rate is 3.5% making the repayment interest rate 6%.
Late payment interest for 7 days is £9.60
£8,340 × 6% × 7 ÷ 365 days = £9.60
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.
When you can object to late payment interest
You cannot appeal against your late payment interest charge. However, you can object if:
- HMRC has made a mistake or caused an unreasonable delay, which has contributed to the build-up of interest
- you dispute the relevant date or effective date of payment
- you are questioning the legislation
We can only accept an interest objection if you have fully paid the tax for which the interest charge has been made. Contact the VAT: general enquiries helpline if you need to discuss this further.
Help and support for VAT
Watch the ‘overview of new VAT penalties and interest charges’ recorded webinar to find out more.
Source: HM Revenue & Customs
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