NEW VAT Penalty Framework

HMRC, News, VAT,

The change to the new VAT penalty point system was delayed because of the pandemic, and will now take effect for VAT periods starting after the 1st January 2023.

The default surcharge will now be replaced by new penalties based on a points system, depending on whether the VAT Return is submitted late or the VAT is paid late. This will include nil or repayment VAT Returns.

How does the points VAT Penalty system work for late submissions?

Any time a VAT Return is submitted after the due date, one penalty point will be imposed. If a penalty threshold is reached, there will be a standard £200 penalty, and a further £200 penalty for any subsequent late filling.

The penalty threshold will vary depending on the frequency of submission, as follows:

Annual submissions            2 points threshold   24 months period of compliance

Quarterly submissions        4 points threshold   12 months period of compliance

Monthly submissions          5 points threshold   6 months period of compliance

The Period of Compliance shown above is the period for which you need to submit your VAT Returns before the deadline to reset your penalty points total.

And for late payment?

The sooner the penalty is paid, the lower the rate will be.

Up to 15 days beyond the due date – no penalty

16-30 days beyond the due date – the first penalty will be calculated at 2% of the VAT owed at day 15 if payment is made between days 16 and 30.

31 days or more beyond the due date – the first penalty will be calculate at 2% of the VAT owed at day 15 plus 2% of the VAT owed at day 30. A second penalty will be calculated when the outstanding balance is paid in full.

(Agreement of a payment arrangement will trigger the same as a payment for all of the mentions of VAT Payment above.)

What about interest charges?

This is changing too!

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

And the Repayment Supplement?

The Repayment Supplement currently pays an extra 5% of the repayment amount if that refund is not paid within 30 days from the Return’s submission. 

From 1st January 2023, HMRC will only pay interest on the refund amount, calculated from the day after the later of the due date or the date of submission, until the amount is paid in full.

Interest will be paid at the Bank of England base rate less 1%, with a minimum rate of 0.5%.

Is there any grace period?

Yes! There will what HMRC calls a ‘soft landing period’ of 12 months. HMRC will therefore not be charge a first late payment penalty until 31 December 2023, if the outstanding amount is paid in full within 30 days of the normal payment due date.

Further guidance is promised for December 2022, in advance of the new system taking effect. We’ll pass on any material information at that point, but if you have any questions about the new regime, please don’t wait until then, please just get in touch and we’ll talk you through the new process.

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