For VAT periods starting on or after 1 January 2023, the default surcharge will be replaced by new penalties if VAT returns are submitted late or VAT is paid late.
Late VAT returns – Points
The new penalty points system for late VAT returns, which is intended to be adopted across all taxes as the move to Making Tax Digital continues, is intended to be less harsh where the taxpayer misses the occasional deadline.
Late submission penalties will work on a points-based system and for each VAT Return submitted late will incur one late submission penalty point.
Once a penalty threshold is reached, a £200 penalty is charged and a further £200 penalty is charged for each subsequent late submission.
The late submission penalty points threshold will vary according to the VAT return submission frequency. For quarterly VAT returns (which is the most common), the penalty points threshold is 4 points and the period of compliance is 12 months.
Taxpayers will be able to reset their points back to zero if they:
submit their returns on or before the due date for their period of compliance — this will be based on the submission frequency
make sure all outstanding returns due for the previous 24 months have been received by HMRC
Late payment of VAT
The new system will apply in two stages, fixed penalties and daily penalties: essentially the later the payment is, the higher the rate of penalty charged.
Payments that are up to 15 days late (i.e. after the specified payment deadline) will not trigger a penalty.
Payments that are between 16 and 30 days late will trigger a penalty of 2%; (of the amount outstanding at day 15) – although, to help business transition to the new regime, HMRC will not apply this rule during 2023 unless payments are more than 30 days late.
Payments that are 30 days late or more will trigger a 2% penalty of the amount outstanding at day 15 plus an additional 2% penalty calculated based on the amount outstanding at day 30 (i.e. a total of 4% if nothing has been paid).
From day 31, there will also be a daily penalty (calculated at 4% per annum) on the amount outstanding, e.g. a VAT liability left unpaid for 13 months will have triggered a total of 8% in tax penalties.
Period of familiarisation
To give taxpayers time to get used to the changes, HMRC will not be charging a first late payment penalty for the first year from 1 January 2023 until 31 December 2023, if payment is made in full within 30 days of the payment due date.
How late payment interest will be charged
From 1 January 2023, HMRC will charge late payment interest from the day the payment is overdue to the day the payment is made in full.
Late payment interest is calculated as the Bank of England base rate plus 2.5%.
Further Information
To see HMRC’s page on the changes, see the following link: Prepare for upcoming changes to VAT penalties and VAT interest charges - GOV.UK (www.gov.uk)
Contact Us
Please contact us to find out how the above applies in your circumstances and how you can reduce your tax liabilities and maximise your tax efficiency.
Please note that the above is for general information only and does not constitute financial or tax advice. You should not rely on this information to make or refrain from making any decisions. You should always obtain independent professional advice in respect of your own situation.
