Home Insights VAT Penalties are changing – don’t get caught out

VAT Penalties are changing – don’t get caught out

By Ensors Team
9th Dec 2022

A new regime for penalties applying to the late submission or payment of VAT returns is being rolled out, applying to periods starting on or after 1st January 2023.

Currently if a deadline is missed you enter a 12 month ‘default period’.  Miss the deadline for a second time within the default period and a surcharge is payable, which increases with each additional late submission.

The new system works on a points basis.  For each VAT return submitted late you will receive one penalty point.  Once the penalty points threshold is reached a fixed penalty of £200 is charged.  The threshold depends on the frequency of VAT submissions; its 5 points for monthly filers, 4 points for quarterly returns, and 2 for annual returns.

Penalty points will ordinarily expire after 24 months.  However once the penalty threshold is met, points will not expire and a further £200 penalty will be issued for each additional late submission.  Points will expire only once all returns & payments have been submitted on time for a set period of compliance; 6 months for those filing monthly, 12 months for quarterly, and 24 months for annual return.

In a significant change from current arrangements,  penalties will also apply to nil returns and those where a repayment is due, which currently escape penalty.  This often means businesses in this position are in the habit of submitting returns, so now is the time to bring submissions up to date.

Turning to the late payment of VAT, penalties will not be charged where full payment is made within 15 days of the deadline.  Between 16-30 days late the penalty will be 2% of the VAT outstanding on day 15.  Over 31 days, the penalty is increased by 2% of the VAT outstanding on day 30, plus a second penalty at 4%pa for the duration of the balance.  Penalties are calculated once payment is made.

Interest will apply for all late payments, currently at 2.5%, calculated from the due date to the date payment is made.  For repayments, the current repayment supplement is withdrawn, and replaced by repayment interest calculated from the day after the due date or the date of submission (whichever is later) until the day HMRC pays you the amount due.  The rate is set as the Bank of England base rate minus 1%, subject to a minimum rate of 0.5%.

Time to Pay Arrangements (TTP) will still be available, and will stop the clock on penalties & interest accruing.  However breaching the agreed terms of the TTP will mean penalties & interest are charged as is it was never in place, so its vitally important to take note of the conditions.

Should you require any assistance with your VAT affairs, please do get in touch.

By Liz Lockwood, Manager, Ensors Accountants LLP

This information is given by way of general guidance only, and no action should be taken based solely on the information contained herein. No liability is accepted by the firm for any actions taken without seeking appropriate professional advice.