HMRC have introduced new penalty systems for late VAT Returns and late VAT payments which apply to accounting periods starting on or after 1 January 2023 for sole-traders, partnerships and limited companies.
Taxpayers will no longer receive an automatic financial penalty if they fail to meet a submission deadline. Instead, they will incur penalty points for each missed deadline, and a penalty will only be issued once a certain number of points have accrued.
This new points-based system is designed to be proportionate, penalising only the small minority who persistently miss their submission obligations rather than those who make occasional mistakes.
The VAT surcharge which applied a fixed percentage to late payments, regardless of how late the payment is made, is changed to a penalty system which increases the penalty depending on the payment date.
How does the points system work for Returns?
Taxpayers will receive a point every time they miss a submission deadline. HMRC will notify them of each point, and once they have reached the penalty point threshold, they will need to pay £200 to HMRC. The points thresholds are as follows:
- Annual submission – 2 points
- Quarterly submission – 4 points
- Monthly submission – 5 points
For example, a business who submits VAT Returns quarterly has already missed three filing deadlines and accrued 3 penalty points. If the next Return is also late, they will have reached the threshold and will receive a £200 penalty. Further £200 penalties will be received for each subsequent missed deadline.
Can penalty points be removed?
If you have not reached the points threshold, then any points you have received are removed from your record 24 months after the end of the deadline month. If you receive a penaltly for the VAT Return quarter ended 31 March 2023, the deadline for filing was 7 May 2023 and so the point will expire on 31 May 2025 as long as you have not exceeded the threshold.
Once you have reached the points threshold you will need to complete a period of compliance – submitting future Returns on time and any missing returns. The length of the compliance period, and the number of consecutive returns to be filed on time, is as follows:
- Annual submission – 24 months – 2 returns
- Quarterly submission – 12 months – 4 returns
- Monthly submission – 6 months – 6 returns
How are late payment penalties charged?
Late payment interest will be charged from the due date up to the date of payment. However, the VAT surcharge for late payments has been replaced with penalties which increase depending on how late the payment is made, as follows:
- If the payment is no more than 15 days late, no penalty will be charged.
- If payment is made between 16 and 30 days late, a 2% penalty will be charged on the amount owing at day 15.
- If payment is made 31 days or more late, then there will be a 2% penalty charged on the amount owing at day 15 and a further 2% penalty charged on the amount owing at day 30. From day 31 HMRC will then charge a daily penalty at a rate of 4% per year on the outstanding balance.
If you any questions please do not hesitate to get in touch and I’ll be happy to speak with you.
