As of 1st January 2023, new penalties for businesses submitting their VAT returns or paying their VAT late have been introduced, with the first monthly returns and payments affected by the penalties due by 7th March 2023. These new penalties are designed to be fairer and more proportionate to businesses, replacing the VAT default surcharge with a points-based system for late submission penalties and late payment penalties.
Late submission penalties will work on a points-based system where businesses will receive a penalty point for each VAT return submitted late until they reach the penalty point threshold. At this stage, they will receive a £200 penalty, and a further £200 penalty will apply for each subsequent late submission while at the threshold. The threshold varies to take into account monthly, quarterly, and annual accounting periods. These penalties will also apply to businesses that submit nil returns and repayment returns.
Late payment penalties will be charged if a VAT payment is more than 15 days overdue, with a first late payment penalty. If the payment is more than 30 days overdue, the first late payment penalty increases and a second late payment penalty will also apply. To help customers adjust to the changes, HMRC will not charge a first late payment penalty on VAT payments due on or before 31st December 2023, if businesses either pay in full or agree to a payment plan within 30 days of the payment due date.
HMRC will assist businesses that cannot pay their VAT bill in full by allowing them to set up a payment plan to pay their bill in installments. After 31st December 2023, if a customer proposes a payment plan within 15 days of payment being due and HMRC agrees to it, they would not be charged a late payment penalty, provided they adhere to the payment plan’s conditions. Late payment penalties may still apply if proposals are made after the first 15 days, but the agreement of the payment plan can prevent them from increasing.
Changes have also been made to how interest is calculated. HMRC has introduced both late payment and repayment interest, which will replace the previous VAT interest rules, bringing the new regime in line with other taxes.
The Director of Tax Administration at HMRC, Paul Riley, has said that the aim of the new penalties is to help customers get things right before monetary penalties are applied and that the points-based system for late VAT returns will not punish the occasional error. HMRC is contacting 2.5 million VAT-registered businesses about the changes and will continue to support customers to help them manage their tax affairs and payments.
These changes to VAT penalties and interest payments aim to be fairer and more proportionate to businesses, encouraging them to pay their VAT on time and providing support to those who cannot pay their VAT bill in full. Businesses should be aware of these changes and take steps to ensure they submit their VAT returns and pay their VAT on time to avoid any penalties or late payment fees.
Source: Gov[Dot]YK
