HMRC’s new penalty system for late VAT returns and payments will take effect from January 2023. In case you’ve not seen our previous blogs on how to avoid being penalised, here’s the latest from LWA on what you need to know about the new rules.
Out with the old
Under the current penalty points system, HMRC charges a financial penalty (surcharge) if you are late in submitting your VAT return or payment. For a first and maybe a second offence, HMRC will usually not fine you but give you a suspended sentence. If you’re late again within a certain period of time, you will be fined.
For VAT periods starting on or after 1st January 2023, HMRC is replacing the default surcharge with separate penalties for late returns and late payment of VAT as detailed below.
- Late returns - HMRC will issue a penalty point each time you are late with a return; 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 it’s five points, for quarterly it’s four and for annual it’s two. The deadline for submitting your returns will not be changing and will continue to be one month and seven days after the end of each VAT return period. Read more on thresholds in our previous blog here.
- Late payments - from January 2023, HMRC is introducing 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 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.
Like driving a car
HMRC’s new approach to charging interest on late-paid VAT will operate in a similar way to the penalty points system for motoring offences. Also, like the system for motoring penalties, the points expire after a period of time; after spending two years on your record a penalty point is removed. So, if you keep a clean slate for two years, you’ll have zero points against you.
Penalties will only apply to late returns. You won’t be given penalty points for late payments, but you will be charged interest.
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.
How much are the fines?
If your business submits its return late (which also applies if you submit a nil or repayment return late), you could face penalty points and a £200 fine.
Unlike the current surcharge system, the penalties will not increase the more returns you submit late. Instead, once you reach the threshold, you’ll be charged £200 for each late return whether or not you owe any VAT.
Interest will be charged at the Bank of England base rate plus 2.5% per annum on the amount you owe.
Remember, unlike the current system where you can be surcharged if you are late with either your VAT return or your payment, from January 2023, penalties will only apply to returns. That means, even if you can’t pay your VAT bill, make sure you submit your return on time. That way you’ll only face interest charges until you settle what you owe.
Avoid being fined
More detailed guidance about the changes to VAT late submission penalties, late payment penalties and VAT interest charges are due to be published on Gov.uk in December 2022. Keep an eye on the link below and in the meantime for any concerns about whether you are due to submit a return or have any payments due, contact our Tax team on 0161 905 1801 in Manchester or 01925 830 830 in Warrington, or you can email email@example.com.