New VAT Penalty Regime

The new VAT penalty regime comes into effect from January 2023, when all VAT registered businesses with be subject of the new vat penalty regime.

The current VAT default surcharge system, that applies to both late filing and late payment, will be replaced by two completely separate penalty regimes. Firstly, one for late filing. Secondly, one for late payment.

New VAT Penalty Regime Overview

 

Late Filing

Under the new penalty regime, the tax payer will only be subject to a financial penalty for late filing if they reach a threshold of points levied.

One point is levied for each failure to file on time.

The points threshold depends on the submission frequency of the return:

 

Penalty threshold Period of compliance
Annual 2 24 months
Quarterly 4 12 months
Monthly 5 6 months

 

Once these thresholds have been exceeded there will be an automatic penalty of £200.  Every late submission, after the points threshold has been breached, will trigger another £200 fine. However, those additional penalties will not add any further points.

Each point will expire after two years, starting from the month following the month the late filing occurred.  However, points do not expire once the penalty threshold has been reached.

 

Late Payment

No points are levied in the late payment system.  Each late payment penalty stands on its own. The rate of penalty is not increased if the taxpayer has a history of late payments for earlier periods.

The key aspects of the new late payment regime are:

  1. Where the VAT due arrives at H M Revenue and Customs within 15 days, there is no penalty.
  2. VAT remaining unpaid after 15 days triggers an automatic penalty of 2% of the unpaid amount.
  3. VAT remaining unpaid after 30 days triggers another 2% penalty.
  4. Any VAT still outstanding at day 31 creates a daily penalty that increases at 4% per annum of the outstanding debt.

 

Late Payment Interest

In addition to the late penalty the taxpayer will also be charged interest on any tax paid late, at the rate of 2.5% per annum, plus the bank of England base rate.

Reasonable Excuse

If the tax payer has a reasonable excuse for late payment they will be able to communicate this to H M Revenue and Customs, before the penalty is raised.

All penalties can be appealed.

 

Rolling out to Income Tax

The new VAT penalty regime for late filing and late payment will apply to all tax payers within Making tax Digital for submissions and payments from 6 April 2024.

All other taxpayers who are within self assessment will be brought into the new penalty regimes from 6 April 2025.

 

Conclusion

The best way to stay away from penalties is to submit returns when they fall due.

We can help you save time and money by making sure you understand and meet your taxation obligations to HMRC.

If you ever get behind then make sure you seek support to get you back on track. Speak to us on 01244 400244.

Shaw Austin are a firm of Chartered Accountants based in Chester supporting independent business throughout the UK. We take the headache out of business accounting and taxation by providing our clients with a personal service.

This article includes tax rates and allowances correct on date of publishing – tax rates and allowances can change from year to year. This is a general article to assist readers. Professional advice should always be taken in respect of your personal circumstances.

Published April 2022

New VAT Penalty Regime