Late VAT Penalty Regime Change
The regime by which HMRC applies penalties to late payments or returns is changing for VAT Returns that start on or after 1st Jan 2023. In most cases this means it applies for VAT Retuns ending 31st March 2023.
Whereas the previous regime treated late submissions and late payments equally the new one distinguishes between the two.
LATE Submissions
Under the new regime penalties for late returns will be calculated under a points system. Each late return will count as 1 point. The number of points above which a penalty is incurred depends on the frequency of returns:
Annual VAT Returns - 2 points
Quarterly VAT Returns - 4 points
Monthly VAT Returns - 5 points
Once a business has surpassed the relevant threshold, a £200 penalty is automatically applied. Thereafter a £200 penalty is automatically applied for each late submission, unless the business has managed to reset its points tally to zero.
To reset its points tally to zero a business must submit VAT returns on time for a certain period. The length of the period depends on the frequency of returns:
Annual VAT Returns - 24 months
Quarterly VAT Returns - 12 months
Monthly VAT Returns - 6 months
LATE PAyments
Late payments are subject to both interest and penalties.
Interest
Interest will be charged from the day the VAT payment is due up to the date of payment at Bank of England base rate + 2.5%. This will apply whether or not the business has a Time To Pay arrangement in place.
Penalties
No late payment penalty will be charged if the payment is made within 14 days of the due date. Except where a Time to Pay arrangement is made penalties are applied at the following dates and amounts:
Day 15 - 2% of the liability
Day 30 - 2% of the liability
Day 31 onwards until the payment is made - 4% per annum
To avoid the above penalties an application for a Time To Pay arrangements must be made before Day 15. Approval by HMRC is not required by the same date.
The Time To Pay arrangement will remain in place as long as its terms are met. Even one missed payment will result in penalties being applied.
Transition arrangements
To give businesses time to absorb the new regime, HMRC has said it will not charge a late payment penalty during 2023 for the first late payment if the payment is made within 30 days of the payment due date.
