New VAT Penalty Regime - From January 2023
Posted on 1st December 2022
For VAT periods that start after 31 December 2022, HMRC's Default Surcharge Regime is replaced with new Penalty Scheme with separate charges for late filing and payments.
Old Rules - The Default Surcharge Regime
Until now, either a late VAT payment or a late submission of a VAT return would trigger a Surcharge Liability Period of 12 months. This meant that a business would incur penalties based on the amount of VAT outstanding on the due date for every late payment or submission within the Surcharge Period and a business had to be fully compliant for 12 months before the Surcharge Period would be cleared.
New Rules - The Penalty Regime
With effect for accounting periods that start from 1 January 2023, two new penalties are to be introduced – one for late payments and another for late submissions. Interest charges will also apply to late payments in addition to the penalties.
1. Late Payment Penalties
Late payment penalties are imposed where a VAT liability is not paid in full by the end of 15 days after the due date and are based on the amount outstanding.
Penalties can be avoided if a Time to Pay arrangement is entered into swiftly or if there is a “reasonable excuse” for non-payment.
Past Due Date - Penalty
1-15 Days - 0%
16-30 Days - 2%
31+ Days - 4% + 4% p.a. accruing daily
In addition to the penalties above, interest is charged from the first day that the payment is late and runs until the payment is made in full. The current rate of interest applicable (as at January 2023) is 6% p.a.
2. Late Filing Penalties
As a direct replacement to the Surcharge Notice period, there will be a points based system. One point will be applied for each late submission. This will include the late submission of nil or repayment returns that previously did not give rise to a penalty as there was no VAT to pay.
A maximum threshold is set depending on the frequency of the returns as shown in the table below. Once the maximum threshold is reached there is an immediate £200 penalty. Whilst at the maximum a further £200 will be charged for each additional late submission.
Points applied will expire after 24 months if the maximum is not reached in that time. Once the maximum is reached the business must be fully compliant with filing VAT returns on time for a set period depending on the frequency of the returns (listed below). Once a business has been compliant for the set time then all points will expire.
Frequency of Returns / Maximum Points Threshold / Expiry Period
Annual / 2 / 24 months
Quarterly / 4 / 12 months
Monthly / 5 / 6 months
The decision to apply a penalty point will be notified in writing and can be appealed if there is a reasonable excuse for the late submission.
Existing Surcharge Periods
For those already in a Surcharge Notice Period the good news is that the slate is wiped clean and points will accrue only from periods starting after 1 January 2023.
Summary
We support all our clients by completing their VAT returns promptly - with the majority benefitting from our fully managed bookkeeping service. If you work with us, we will ensure you are fully supported and aware of the deadlines to avoid you incurring any penalties.
If you have any questions on this, please get in touch!
Written by:
Nicola J Sorrell - Effective Accounting
Founder | Xero Champion | IR35 Expert
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