The new penalty system was due to come into effect from 1 April 2022 but this has now been delayed by nine months until 01st January 2023.
The plan was to bring the VAT penalty system in line with existing penalties which apply to direct tax returns.
There will be two-tier penalty system. The first on is the late submission penalty- HMRC will a single penalty point for a late submission of a VAT return. Once the business has exceeded a points threshold for multiple missed returns, a flat penalty will be imposed for each late return. The points will have a life of two years after which they will expire.
The penalty thresholds will be as follows:
| Submission Frequency | Penalty Threshold |
|---|---|
| Annual | 2 points |
| Quarterly (Including MTD for ITSA) | 4 Points |
| Monthly | 5 points |
Taxpayers will have one points total for each submission obligation they have. For example, if a taxpayer is required to provide an annual self-assessment tax return and quarterly VAT returns, they will have separate points totals for self-assessment and VAT. If both returns are late, a point will be applied to the points total to which the return relates: one for the group of annual returns for the late self-assessment tax return, and one for the group of quarterly returns for the late VAT return. If both returns had an annual submission frequency, there would still be two separate points totals, one for self-assessment and one for VAT, and the taxpayer would incur a single point for each if both returns are late.
There will also be late payment penalties – this will be a two-part penalty. The first charge will be imposed at 2% of the outstanding tax if the tax due on a return remains unpaid 15 days after its due date. If any of this tax is still unpaid after 30 days, the penalty increases to 4% of the tax still outstanding at that point. The second charge is a daily penalty (set at 4% per year on the outstanding amount) starting from 31 days after its due date until the business pays the tax that is due.
Late payment interest (calculated at 2.5% above the Bank of England base rate) will be payable on tax outstanding after the due date for a VAT return. Where a payment is made after the due date, late payment interest will be payable from the due date until the date full payment of that tax is received by HMRC.
The time limit for HMRC to assess a financial penalty will be two years after the failure which gave rise to the penalty.
How can we help?
We can assist with the preparation and submissions of the VAT return on time.
We will also update you with the new VAT regulations that may impact your business.
If you wish to discuss any of these or other issues, please do contact us.
