Watch Out – New VAT Returns Penalty!

HMRC have recently launched a new penalty regime for VAT registered businesses. Should a VAT registered business fail to submit their VAT Return on time, then late submission penalties will apply for all VAT return periods starting on or after 1 January 2023.

These changes will affect all VAT returns, including nil or repayment returns.

The previous VAT default surcharge is replaced by the implementation of a new points-based system for late submission penalties. Each late return will result in a penalty point until the VAT registered business reaches a penalty point threshold.

When the VAT registered business reaches their penalty point threshold, a penalty of £200 will be charged by HMRC. A further £200 will be charged for each subsequent late filing while the VAT registered business is on the threshold.

It’s All About Points

Each VAT registered business will have a penalty threshold based on their VAT accounting periods as follows:

A VAT registered business will be able to reset its penalty point tally provided that HMRC have received all outstanding VAT returns for the previous 24 months and the VAT registered business has submitted its VAT returns on time throughout their compliance period.

Penalties and Interest for late VAT payments

For VAT return periods starting on or after 1 January 2023, late VAT payments will attract both interest and penalties.

Interest

HMRC will charge interest from the day the VAT payment is due up to the date of payment in full at a rate of interest of Bank of England base rate plus 2.5%, even where the business has a Time To Pay (TTP) arrangement in place.

Penalties

No late payment penalty will be charged if the VAT is paid within 14 days of the due date. A penalty of 2% will be charged thereafter on the VAT outstanding at day 15 and a further 2% of the VAT outstanding at day 30. Daily penalties at a rate of 4% per annum will then be charged from day 31 until the VAT is paid in full.

Businesses can apply for a Time To Pay arrangement in order to perhaps reduce or remove the late payment VAT penalty. Please be aware that this application should be made within 15 days of the VAT payment being due.

For more guidance, please follow this link to the relevant page on the HMRC website.

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