VAT Penalties and Surcharges from HMRC
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
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.
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 Read