HMRC have implemented a new system of penalty points for the late filing of VAT returns and late payment of VAT from 1st January 2023. The new process has been put in place to give repeat offenders more harsh payment penalties. It aims to be less harsh on those who might miss the odd deadline.
The new penalty regime replaces the unpopular VAT default surcharge regime. The previous system has, on occasion, imposed large fines on businesses that have VAT payment only a few days late. The new system is likely to be mostly welcomed by taxpayers, as it will reduce their risk of receiving a substantial penalty for a minor error or oversight related to VAT compliance.
The new system is great news for those businesses that might occasionally submit and/or pay their VAT return less than 15 days late (for example, because of an or bank error, admin error or a short cash flow-related issue), as they will only incur relatively small amounts in penalties and interest.
Submitting late VAT returns
HMRC will record 1 point on your account each time you miss a deadline for filing in your accounting period i.e. whether you have to submit VAT returns annually, quarterly or monthly. Once you have reached a penalty point threshold you will be charged a penalty of £200. If you continue to miss deadlines after your first penalty charge, HMRC will apply a further penalty.
The penalty limits are:
| 2 points | Annual VAT returns |
| 4 points | Quarterly returns |
| 5 points | Monthly returns |
Penalty points will stay on your HMRC record for a set period until you start to submit your returns on time. Periods depend on your return frequency: 6 months for 6 months, 12 months for quarterly and 24 months for annual.
Note that HMRC will be introducing similar systems across all taxes as part of the transformation to making tax digital (MTD).
Late payment of VAT
No late VAT penalties will be charged if you pay your VAT within 14 days of the due date. From 15 days onwards, a penalty will be charged at 2% of the outstanding VAT, with a further 2% charged of the VAT outstanding at day 30. Daily penalties will then be charged at a rate of 4% per year from day 31 until the VAT is paid in full.
As well as the late payment changes, HMRC will charge repayment interest from the day after the due date or the date of submission (whichever date is later) until the repayment is made. This will be at a rate of the Bank of England base rate minus 1%, subject to a minimum rate of 0.5%.
Note that HMRC recognises some businesses may need time to get to grips with the new points system. HMRC will not be charging a first late payment penalty until after 31st December 2023.
What if I cannot pay my VAT?
The points system is designed to support businesses in filing their returns easily, enabling them to pay their VAT on time. However, if you are finding it hard to pay your VAT bill, file your return on time and then ask HMRC for Time To Pay Arrangements. They will then agree an instalment payment plan with you. At this time the interest charges on overdue payments will be frozen as long as planned payments are made.
How can we help?
We understand that HMRC are hoping the new penalty system will easier for all, but we are here to help if you need us. Based in London, we work predominantly locally, but we can also help UK wide with tax advice and planning. We specialise in providing tax advisors with comprehensive knowledge of the tax rules that affect you.
If you have received a penalty for late filing of VAT return? Worried about the VAT penalties? Get in touch today via email info@passmanleonard.co.uk or call on 01895 434515.
