1-Jan-23: New VAT penalties system

A new penalty regime came into effect for VAT periods starting on or after 1 January 2023. The changes will impact the charges for missing VAT filing and payment deadlines and will be replacing the current VAT default surcharge system. These changes place continued importance on being up to date with your VAT returns, aware of your overall tax liabilities and in regular communication with your accountant / HMRC to minimise the impact of penalty and interest charges.

Late submission penalties

These will work (even for Nil/repayment VAT returns) on a points-based system, dependent on your return submission frequency.  For each return submitted late a taxpayer will receive a penalty point. Once the penalty point threshold is reached (which is 4 for quarterly Returns), the taxpayer will receive a £200 penalty and a further £200 penalty for each subsequent late submission while at the threshold.

Late payment penalties

From 1 January 2023, HMRC will charge late payment interest from the day your payment is overdue to the day your payment is made in full. Late payment interest is calculated as the Bank of England base rate plus 2.5%.

For late payment penalties, the sooner you pay the lower the penalty rate will be.

• Up to 15 days overdue – You will not be charged a penalty if you pay the VAT you owe in full or agree a payment plan on or between days 1 and 15.
• Between 16 and 30 days overdue – You will receive a first penalty calculated at 2% on the VAT you owe at day 15 if you pay in full or agree a payment plan on or between days 16 and 30.
• 31 days or more overdue – You will receive a first penalty calculated at 2% on the VAT you owe at day 15 plus 2% on the VAT you owe at day 30.

You will then receive a second penalty calculated at a daily rate of 4% per year for the duration of the outstanding balance. This is calculated when the outstanding balance is paid in full or a payment plan is agreed.

1^st year exemption

If the tax is paid in full within 30 days then no penalties or interest will be applied in the first year of the scheme.

As always, if you require clarification or additional information, please contact Whitings LLP.

Disclaimer - All information in this post was correct at time of writing.