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VAT Penalties and Surcharges from HMRC

From 1 January 2023, new penalties for late VAT filing and payment now apply. This applies to everyone who is to submit a VAT return for accounting purposes, on or from that date.Interest which is applied to late VAT payments and late HMRC payments has also changed.It is important to understand the changes; some being an improvement on the previous regime, but some being ways to catch out taxpayers and related agents. For that reason, we explain it for you here (You may also see this page on the Gov.uk website, for details). Late Filing of VAT This system is now points based. Taxpayers will receive a point for each VAT return that is filed late. When the taxpayers' total number of points reaches a threshold, a fixed £200 penalty will be applied. This penalty is to be applied for each and every additional late VAT return after reaching the threshold.The frequency of which the taxpayer files their VAT returns will determine the threshold:Annual returns – 2 points Monthly returns – 5 points Quarterly returns – 4 pointsHow long do my points remain? It should be noted that there are ways to reset your points.If the taxpayer reaches their penalty threshold then points expire after a period of compliance If the taxpayer is below their penalty threshold then points expire after 24 hoursWhat is a period of compliance? Ultimately, this refers to a period in which all returns have been filed on time and all outstanding VAT returns for the previous 24 months must have been submitted. Following this period, the taxpayers' points total will reset to zero.You can see the table below for more informationSubmission frequency Penalty points threshold Period of complianceAnnually 2 24 monthsQuarterly 4 12 monthsMonthly 5 6 monthsIs there a link between the amount of late filing penalty and the VAT due on the return? Unlike in the previous regime, this time round there is no relation. This means repayment traders and taxpayers filing null returns will be in the midst of late filing penalties for the first time. Late VAT Payment The changes have been made to encourage struggling taxpayers to reach out and engage with HMRC as soon as possible.Penalties applied are based on how late the payment is. So the sooner you pay, the lesser the penalty rate.Between days 1 and 15, if you agree on a payment plan or pay the owed VAT in full, no penalty will be charged Between 16 and 30 days overdue, a first penalty will be calculated at 2% of the VAT unpaid on day 15. If at 31 days or more overdue, along with the first penalty, you will be charged an additional 2% on the VAT owed on day 30 From day 31, a second penalty applies, charging daily at an annual rate of 4% of the outstanding amount, for the duration it remainsWith both penalties in mind, if a Time to Pay Arrangement (TTP) is agreed upon with HMRC then this is treated the same way as a payment. The penalty clock will stop on the date of the TTP application. If the TTP terms are broken, full penalties will be charged and it will be as if the arrangement never existed. Time to Pay Note: You must request a TTP within 15 days of the due date for the penalty to not apply.Please do speak to us as soon as possible, preferably before the deadline, if you’re unable to pay VAT or PAYE. At KSA, we are experts in speaking with HMRC, so let us help you and use our skills to try and arrange a time to pay deal – this can certainly reduce the pressure and help you out with the repayments, avoiding penalties. Period of Familiarisation: For the first year these new rules are in place, HMRC will not be charging for the first caveat to the first penalty i.e. the 2% at day 15. What does this mean for you, shall you ask?As a taxpayer, you can pay your VAT bills up to 30 days late, penalty-free…though of course, we do not recommend it – and remember, you will not be escaping interest for this too. Interest The interest for late payment of VAT will be charged at the Bank of England base rate plus 2.5% - as with other taxes.The repayment supplement will be withdrawn for VAT periods starting on or after January 1, 2023. Instead, repayment interest will be payable by HMRC, on any VAT that you are owed, at the Bank of England base rate minus 1% (with a minimum of 0.5%). The amount will be calculated from the day after the due date or date of submission (whichever is later) until the day HMRC pays the repayment VAT amount due in full.So, this is a basic overview of the changes for you, with further guidance expected in the new year. Get in touch with our team today to avoid being caught out by these penalties. We would love to help you out - 0800 9700539

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VAT Penalties and Surcharges from HMRC

HMRC Debt Management Department

What is it and how can it help? His Majesty’s Revenue and Customs (HMRC) handles debts relating to Income Tax, VAT arrears, tax credit overpayments and National Insurance. Upon owing any of these ‘priority’ debts it is best to try and settle as soon as possible. HMRC have some assistance in place.  You can call HMRC Debt Management support service on 0300 200 3887.Be sure to contact the specialist Department if you are in need of setting up a tax payment plan because you owe tax and are unable to pay HMRC. They understand how HMRC's Enforcement Department (the main department that collects taxes) works and can offer guidance in how best to approach them. So how can they be contacted? You can call the HMRC debt management helpline: Monday to Friday, 8am – 8pm: 0300 200 3887.If you are aware that you will not be able to pay the tax bill in full before your payment deadline then you should instead call the Business Payment Support Service on 0300 200 3835; open 8am – 8pm Monday to Friday and 8am – 4pm on Saturday.For those authorised as a tax agent or adviser for clients, wishing to discuss PAYE, VAT, Self-assessment or tax credit queries, there is an Agent Dedicated Line. See more information here. One particular role the department has is send warning letters. When you are behind on paying tax, either late to pay or have not yet paid, then the HMRC debt management department have the task to issue reminder letters and chase for payment with the threat of further actions if payment is not made. And this is just stage one. Letters, penalties and enforcement actions will come rapidly. It is a key function for those within this department. What does the letter cover? Ultimately the letter covers the following:The amount HMRC believe you owe Details of how to pay Next steps and what action may be taken if the debt is not paidThere have been scams where debt management letters have been sent but not from HMRC. Look out for a legitimate website address and phone number – matching to that on the www.gov.uk website. Note that all HMRC helpline numbers will begin with 0300. Look for correct grammar and no requests for bank details. Remember to Check The Calculation One thing is for sure. No one is perfect and correct each and every time. Even HMRC can make errors in calculations. So be sure to not assume the calculation is accurate just because it comes from a large government organisation. Always double check and back track records to ensure what you owe is correct.When contacting HMRC it is crucial that you are prepared and have all necessary information to hand. Such information includes:Your name and address Your tax reference The registered company name and address Details regarding why you are struggling to pay your tax bill What you have done to raise the money How much you can pay now An approximation of how much time you need to repay the outstanding balance Information regarding the companies assets, cashflow and expenditureWhat options are there? Individual Voluntary Arrangement (IVA) This is a formal arrangement between you and your creditors, allowing time for you to pay back your debts over an agreed and specified time. Note: HMRC do accept IVAs but usually have their own guidelines about the circumstances in which they’ll accept this. Speak with an insolvency practitioner such as us at Company Rescue who can help you prepare a proposal for HMRCs consideration. Time to Pay Arrangement These are monthly instalments over a period of twelve months (usually). Be aware that all other taxes must be paid when due or this arrangement will go into default. This would mean HMRC are likely to doubt the company’s ability to pay its future payments and so any chances of reaching a further agreement to settle the debt will be halted. Hence, we advise you to get assistance in proposing such a plan to ensure you can realistically afford it. Debt consolidation Taking out a new loan in order for existing debts to be covered. This simplifies your repayment process and helps reduce interest on any debts. However, this can make the situation worse if it is done without a clear understanding of the fine print of all the loans involved. Therefore, you must consider this option strategically. Debt management plan A formal arrangement made between you and your creditors so you can pay off your debts. Unlike an IVA, creditors can still take legal action during this process. Debt relief order This is a low-cost alternative to bankruptcy. However, this is not suitable for companies; only for individuals living in England or Wales with few assets (£1000 max worth) and minimal debt (less than £20,000). The debt-relief order freezes any interest and repayments for 12 months and after that period debts will be written off. What if an agreement cannot be reached? If no agreement is made, the debt management department are likely to ask you some questions about your personal finance situation to see if you can settle the debt or not. They must be satisfied that you are being honest in attempting to pay the debt and are not withholding funds for other things non-related.A debt management officer will be appointed to handle your case and it is there job to challenge any expenditure they see as unnecessary.If an agreement cannot be reached and/or the debt is ignored completely, enforcement action will be taken by HMRC. This is done so they can collect the money owed. There are various ways this is done. For more information see our guide here: HMRC enforcement action. What if I cannot pay? When you cannot pay you must act quick. Ultimately, it is a warning sign and triggers potential insolvency as per the insolvency test criteria. What options do I have? Speak with a licensed insolvency practitioner to help with getting a Time To Pay Deal. For example, us at KSA Group (owner of this site). We have years of experience in dealing with HMRC, especially in proposing realistic TTPs.Propose a company voluntary arrangement (CVA) to HMRC. This is a proposal to restructure the debt, for example paying monthly repayments to creditors, over an agreed period of 3-5 years. Note that in this scenario some of the debt may be approved to be written offSeek funding from elsewhere i.e. invoice finance, bank loan, sales of assetsPlace your company into administration. In doing this you cease any legal action, being protected by a moratorium, whilst you work with an insolvency practitioner to plan the next steps which may involve a CVA or voluntary liquidationPlace your company into a creditors voluntary liquidation. This will allow no chance of rescue – it means the end for your company. Under this procedure you simply follow the steps and have assistance in shutting your company down.So, all in all, do your best to avoid enforcement action and contact HMRC as soon as a payment has been missed or in advance of the payment deadline if you know you will be unable to pay. Delaying these sorts of priority payments will only make the problem worse.For any queries and/or guidance in dealing with outstanding payments to HMRC and the options available to you, contact our team of experts today on 0800 970 0539

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HMRC Debt Management Department