HMRC have implemented a new approach to these penalties, which are designed to be fairer and more effective. For VAT return periods starting on or after 1 January 2023, late VAT returns and VAT payments will now be subject to late submission and late payment penalties. The default surcharge system is soon to be a ‘thing’ of the past! HMRC’s aim is to align the VAT penalties with ITSA.
Late submission penalties
When a customer misses a submission deadline, including nil and repayment returns, they will be subject to Late Submission points and penalties, these points accrue separately for VAT and ITSA. Customers can appeal the points and the penalty charges. Once penalty thresholds have been met, a fixed penalty of £200 will be issued, and then for every subsequent late submission, another £200 will be issued.
These thresholds will vary according to the filing frequency:
|
Submission Frequency |
Penalty Threshold |
|
Annual |
2 points |
|
Quarterly |
4 points |
|
Monthly |
5 points |
Removal of points
Resetting of points (Multiple or individual)
Similar to the default surcharge regime, if a couple of VAT returns are submitted late, taxpayers can redeem themselves and HMRC will, for ‘good behaviour’, remove the late submission penalty points. If taxpayers meet the following two conditions, HMRC will remove the penalty points -
- VAT returns are submitted on or before the due date for a period based on their submission frequency, so, similar to default surcharge, for businesses with standard quarterly filing, if VAT returns are submitted on time for a 12-month period one, condition one is met
|
Submission Frequency |
Period of Compliance |
|
Annual |
24 months |
|
Quarterly |
12 months |
|
Monthly |
6 months |
- All returns have been received that were due within the preceding 24 months
One thing to point out here, if the taxpayer has not met the points threshold, each individual point will automatically expire after 24 months.
Late payment penalties
Things seemed straight forward up to this point! The late payment penalties have been put into place to try and encourage taxpayers to settle their bill as soon as possible, therefore, the sooner a customer pays their VAT liability, the lower the penalty rate will be.
|
|
DAYS AFTER DEADLINE |
pENALTY pOSITION |
|
|
0 to 15 |
If VAT is paid in full, or a payment plan is agreed, no Late Payment Penalty issued. |
|
FiRST PENALTY |
16 to 30 inclusive |
First Late Payment Penalty is calculated at 2% of outstanding at day 15 if customer pays in full or agree a payment plan. |
|
Day 31 plus |
First Late Payment Penalty is calculated at 2% of outstanding at day 15, and a further 2% on what is still outstanding at day 30. |
|
|
sECOND PENALTY |
Day 31 plus |
Second Late Payment Penalty is calculated as a daily rate of 4% per year for duration of outstanding balance. This will be calculated when outstanding balance is paid in full or agree a payment plan. |
Because this is completely new, HMRC have confirmed that for the first 12 months they will not be charging a first late payment penalty, to allow customers time to get used to the changes. However, this only applies if customers pay in full within 30 days of their payment due date.
Late payment interest
In addition to late payment penalties, we also have late payment interest from 1 January 2023. Late payment interest aligns VAT with the current rules for ITSA.
|
Interest Rate |
Description |
|
Calculated at a rate of 2.5% plus the Bank of England base rate. |
HMRC will charge late payment interest (LPI), for VAT periods starting on or after 1 January 2023, if a customer’s payment is overdue, until it is paid in full. |
Repayment interest
Repayment Supplement will be replaced with Repayment Interest on 1 January 2023. This will work on the same principles as repayment supplement, but the rates will vary as the Bank of England base rate changes.
|
Interest Rate |
Description |
|
Calculated at the Bank of England base rate minus 1%, with a minimum rate of 0.5%. |
HMRC will pay Repayment Interest, for VAT periods starting on or after 1 January 2023, on any tax due to be repaid to the customer (from the day after the due date or the date of submission, whichever is later, and until the day HMRC pays you the repayment VAT amount in full). |
The next step
For more information, please contact Michelle Dale on m.dale@uhy-manchester.com, or your usual UHY adviser.
