New point-based VAT penalties and late payment penalties
What you need to know
Businesses that ensure they keep up to date and compliant with their VAT returns face less likelihood of being fined under a new VAT penalty system and fines for occasional defaults will be less swingeing than under the previous default surcharge regime.
However, the new regime will apply fines to late filed nil returns and repayment returns which was not the case under the previous default surcharge regime and so repayment businesses need to be aware.
The new points-based late filing and payment penalty system for VAT has been introduced for VAT periods starting on or after 1 January 2023. The good news is that previous defaults will not be recognised under the new regime so taxpayers start with a clean slate.
How do the new late submission penalties work?
Every time a submission deadline is missed you will receive a point, which HMRC will notify you of on each occasion.
After receiving a certain number of points an initial financial penalty of £200 is charged.
The threshold that must be reached for a penalty to be issued is determined by how often a taxpayer is required to make their submission with the usual quarterly returns having a 4 point threshold, so four late returns in a two year period will incur an initial £200 penalty.
However, not only will a penalty be charged for that failure but every subsequent failure to submit on time.
This means that those who continually fail to meet their obligations will face mounting fines.
How do the new late payment penalties work?
HM Revenue & Customs (HMRC) has also outlined its new system for late submission penalties intended to incentivise businesses to comply with their payment obligations. These are as follows:
Up to 15 days overdue
You will not be charged a penalty if you pay the VAT you owe in full or agree on a payment plan on or between days 1 and 15.
Between 16 and 30 days overdue
You will receive a first penalty calculated at 2 per cent of the VAT you owe on day 15 if you pay in full or agree on a payment plan on or between days 16 and 30.
31 days or more overdue
You will receive a first penalty calculated at 2 per cent of the VAT you owe on day 15 plus 2 per cent of the VAT you owe on day 30.
You will receive a second penalty calculated at a daily rate of 4 per cent per year for the duration of the outstanding balance. This is calculated when the outstanding balance is paid in full, or a payment plan is agreed upon.
Late payment penalties are in addition to late payment interest which is charged at the Bank of England base rate plus 2.5% and accrues form the day following the due date for payment.
Need more information on the new VAT penalties? Speak to our team today for advice.
New point-based VAT penalties and late payment penalties
