Changes to VAT
Penalties

HMRC have changed the way in which they charge penalties on late VAT returns and payments from 01 January 2023. They have said that this new penalty scheme will be fairer and more proportionate for businesses who submit their VAT returns or pay their VAT late. The first monthly return to be affected by these changes are returns due by 07 March 2023 and the first quarterly returns affected by these changes are returns due by 07 May 2023.

Late Filing

Under this new regime late submission penalties will use a point-based system along similar lines as driving penalty points. Anyone that does not submit their VAT return on time will accumulate one point for each deadline that is missed. When the specified threshold is met a penalty of £200 will apply to that missed deadline and every missed deadline after. The thresholds are two points for annual returns, four points for quarterly returns and five points for monthly returns. This means that if a business submits their VAT return quarterly, they can miss the deadline three times before this £200 penalty will apply. If the threshold has not been reached then points will expire after two years. If the threshold is reached by any group, be it monthly, quarterly or yearly, in order for them to clear their points they must have a 24-month period in which they have submitted all returns on time.

HMRC has confirmed that all businesses will enter this new penalty regime with a clean slate. If a business is within the default surcharge regime, they will not have any points added in the new regime. However, any outstanding surcharges will still be payable.

Late Payments

Anyone that fails to pay their VAT on time will suffer two different penalties depending on the amount of time the payment remains outstanding. If the VAT is paid within 15 days after the due date there will no penalty charged. If the VAT is paid within 16-30 days of the due date there will be a penalty charged of 2% of the total amount of VAT outstanding at day 15. If after 31 days the VAT still remains unpaid the initial charge of 2% rises to 4%. For example, if the total VAT payable is £1,000 at day 15 there is a penalty of £20, if the VAT is still unpaid at day 31 this will double to £40.

On day 31 a second penalty will also begin to be charged; this penalty is in the form of interest charged on the outstanding amount of VAT owed. Interest will be charged at a rate of 4% per annum, charged every day from day 31 until the outstanding balance is paid in full.

To allow time to adapt to these changes, there will be no first late payment penalty until after 31 December 2023 provided that within 30 days of your payment due date you either pay in full or make a time to pay arrangement.

Time to Pay Arrangements

If a business requires time to pay their VAT liability, they can contact HMRC on their VAT enquiry line and ask for a time to pay arrangement to be put in place. If agreed before day 15 after the payment is due no late payment charges will be applied. A time to pay arrangement will not cover late filing, all returns will still need to be filed on time.