Since 1 January 2023 HMRC have introduced a new VAT penalty system which replaces the original default surcharge regime. In this article we take brief recap of the new regime.
Late VAT Returns
The basics
VAT returns are due one month and seven days after the end of the VAT period. For example, if the VAT period ends 31 March; the VAT return will be due for submission by 7 May.
What are the penalty thresholds?
Where a VAT return is submitted after the deadline, one penalty point will be incurred. However, at this point there is no late filing penalty incurred.
The threshold for penalties will vary depending on whether the entity files monthly, quarterly, or annual VAT returns.
For an entity which files it's returns quarterly, once it has accrued 4 penalty points, a £200 penalty will be incurred. A £200 penalty will then be incurred on all subsequent late VAT returns until 12 consecutive months have passed with a clean record. At this point the “penalty clock” will be reset.
The thresholds for all entities are summarised as follows:
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VAT Return Period
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£200 Penalty Threshold
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Good Compliance Period
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Monthly
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5 points
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6 months
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Quarterly
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4 points
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12 months
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Annual
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2 points
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24 months
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Tips and Advice
IMPORTANTLY, penalty points are incurred not only for late filing of returns which show a liability but also for late filing of nil returns or repayment returns.
Therefore, if you can't pay the VAT liability we strongly advise that you still file the return on time and approach HMRC to discuss a time to pay agreement.
Late Payments
The basics
VAT liabilities are also due by the same deadline as the VAT returns, namely one month and seven days after the period end.
IMPORTANTLY, even if the VAT liability payment has been made on time, if it hasn't actually cleared HMRC's bank by the deadline, it will still be counted as late.
What are the new late payment penalties and interest?
HMRC's new late payment system is summarised as follows:
Late Payment Penalties
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Fixed Penalty
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Daily Penalty
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Up to 15 days late
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No penalty
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None
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16 – 30 days late
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2% of the VAT liability outstanding at day 15
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None
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31 days late or more
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2% of the VAT liability outstanding at day 15, plus 2% of the VAT liability outstanding at day 30.
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4% per annum of the amount outstanding from day 31 until the liability is paid.
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Late Payment Interest
In addition to the penalties, interest will be charged at a daily rate from the due date until the liability has been paid, at the Bank of England base rate plus 2.5%.
If you have any further queries regarding penalties or any general VAT Return questions, please contact us.