HMRC new penalty points scheme and fines now effective

HMRC’s new penalty system for the late submission of VAT returns and payments went live for returns ending 31st March 2023 and thereafter. HMRC is now issuing separate penalties for late returns and late payment of VAT.

In order to help clients, LWA have issued several blogs detailing HMRC’s new penalty points structure and how to avoid being penalised, and below is our latest update on the new rules.


What happens if you submit your VAT return late?

HMRC will issue a penalty point each time you are late with a return (including nil returns and repayment returns); however, you won’t be fined until your points reach the penalty threshold. The threshold varies according to how often you’re required to submit returns: 

  • For monthly returns, the threshold is five points
  • For quarterly returns, the threshold is four points
  • For annual returns, the threshold is two points.

 

Once the penalty threshold is reached your business will be charged a fixed penalty of £200 from HMRC.

The business will then receive a further £200 penalty for any future VAT returns submitted late, whilst at the threshold.

The new points-based system for late submissions is designed to be more lenient for the occasional slip-up, whilst still penalising those who repeatedly fail to comply.

Click here for more information on late submission of returns: Penalty points and penalties if you submit your VAT Return late - GOV.UK (www.gov.uk)

 

Increasing interest and charges for late VAT payments

From January 2023, HMRC has introduced a new approach to charging interest on late-paid VAT and will charge interest on any part of your VAT bill which is unpaid starting from the day after it was due.

If you agree a payment plan with HMRC for example paying by direct debit, interest will still be payable and will start one month and eight days from the end of the VAT return period. It will accrue for each whole day that any VAT is overdue. 

If your payment is more than 15 days overdue, first and second late payment penalties apply. You’ll get a first late payment penalty if your payment is 16 or more days overdue. When your payment is 31 or more days overdue, your first late payment penalty increases, and you get a second late payment penalty.

Interest will be charged at the Bank of England base rate plus 2.5% per annum on the amount you owe.

Here are details of the current penalty charges:

 

First late payment penalty

Second late payment penalty

Payment up to 15 days overdue

None

None

Payment between 16 and 30 days overdue

Calculated at 2% on the VAT you owe at day 15.

None

Payment 31 days or more overdue

Calculated at:

  • 2% of what was outstanding at day 15
  • plus 2% of what is still outstanding at day 30


Calculated at:

  • a daily rate of 4% per year on the outstanding balance
  • charged everyday from day 31 until the outstanding balance is paid in full

 

Click here for more information about penalties for late payments: How late payment penalties work if you pay VAT late - GOV.UK (www.gov.uk)

 

 

LWA are here to help you

Your dedicated accounts contact at LWA will continue to request your VAT information in a timely manner and to remind you to pay any VAT due before the deadline, and we will also keep you updated via our monthly newsletters and social media (you can follow us from our website). However, please ensure you are adhering to the new rules to avoid being fined by reading the links above, and in the meantime for any concerns about whether you are due to submit a return or have any payments due, contact our VAT services specialist, Amy Daniels on 0161 905 1801 in Manchester or 01925 830 830 if you’re in Warrington, or you can email amy@lwaltd.com