New VAT Penalty Regime delayed
As part of the Budget, it was announced that penalties would apply to the late submission of VAT Returns, from the 1st April 2022. This has now been delayed until 1st January 2023.
Lucy Frazer, financial secretary to the Treasury, said this week: ‘HMRC is committed to becoming one of the most digitally advanced tax authorities in the world. The ambition and pace of change needs to be balanced with well-tested systems and good customer service, particularly when businesses are facing additional challenges and uncertainty. This extra time allows HMRC to ensure the IT changes necessary for the new penalties and interest charges can be introduced as effectively as possible, ensuring a high standard of service to customers.’
The new penalty system is intended to bring the VAT Penalty Regime into line with existing tax penalties.
The new VAT Penalty Regime will be a two-tier penalty system.
- Late submissions will attract penalty points, and once a threshold is reached, there will be a monetary penalty for each further late submission. Points expire after two years.
- Late payments penalties will apply in two stages:
- Firstly, 2% of the VAT amount will be charged if the payment is not made within 15 days after its due date, rising to 4% of the tax that remains outstanding at 30 days.
- The second charge is a daily penalty of 4% of the unpaid amount from 31 days after the due date until payment is made.
Do note that late payment interest will also be payable on tax outstanding after the Return’s due date. Calculated at 2.5% above the Bank of England base rate, interest will be charged from the due date until the full amount is received by HMRC.
These amounts could add up very quickly! Our recommendation will remain, that anyone struggling to make a tax payment should contact HMRC before the due date to make a payment arrangement. Though interest will still accrue, penalties will be kept to a minimum.
As ever, if you have any questions or concerns about the new VAT penalty regime or your VAT in general, please get in touch!