19 April 2023

HMRC VAT Penalties Reform


HMRC VAT Penalties Reform

HMRC is reminding VAT-registered businesses to file their VAT returns and pay on time ahead of new penalties being applied.

HMRC have made changes to late submission and late payment penalties, as well as taking a new approach to VAT interest. The Penalty Reform Legislation went live on 1st January 2023 and will come into effect fort he customer’s first VAT accounting period starting on or after 1 January 2023. The penalty for late VAT returns also apply to businesses that submit nil returns and repayment returns.

Late Submission Penalties

The penalty for late submission is now based on a points system. When a VAT registered business misses a deadline, they will receive a point for each missed deadline. Once a penalty threshold has been met, a fixed penalty of £200 will be issued and another £200 for each late submission thereafter.

The penalty threshold depends on the frequency of your VAT Return submissions.

  • Annual VAT Scheme             2 Points
  • Quarterly VAT Scheme         4 Points
  • Monthly VAT Scheme           5 Points

There are ways in which the points can be removed if you meet the HMRC conditions.

Late Payment Penalties

From the first day your VAT payment is overdue, until you pay in full, HMRC will charge late payment interest. However, you will not receive a first late payment penalty until your VAT payment is overdue by 16 days or more.

Once your VAT payment is 31 or more days overdue, your first late payment penalty increases and you will then receive a second late payment penalty.

The HMRC guidance details the penalty rates which will apply at each stage of the overdue VAT penalties.

Late Payment Interest

Late payment interest will be calculated from the day the VAT payment is overdue to the day the VAT payment is paid in full. The interest is variable and will be calculated at the Bank of England base rate, plus 2.5%.

If you have any queries in regard to the new VAT penalty reform and would like some more guidance, do not hesitate to contact us at the office.

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