HMRC have changed their penalty system with the aim of making it fairer. The new regime aims to ensure that regular offenders are penalised more heavily than businesses who have the occasional misdemeanour.

To avoid penalties make sure you:

1. submit your VAT return on time and
2. Ensure HMRC has received your payment on time.

If you’re having difficulties contact HMRC and arrange a “Time to Pay” agreement.

The new regime comes into place for the first VAT return period starting on or after 01/01/2023.

The system consists of three separate penalties:

Late Submission Penalty

There is now a points system in place. For Quarterly returns:

Each time a return deadline is missed a penalty point will be given. The fourth time a return deadline is missed a penalty of £200 will be issued. From that point a £200 penalty will be issued each time a VAT return deadline is missed. This will continue until the business has had a “clean slate” of no late returns and all returns have been made for a 12 month period. Businesses filing VAT quarterly with penalty points will have their points removed after 12 months so long as they have not crossed the threshold of being penalised and have all submitted all their VAT returns.

Late Payment Penalties

First penalty part 1 will be charged if 16-30 days inclusive from the payment due date unless a time to pay agreement has been made. The penalty is 2% of what was outstanding at day 15.

First penalty part 2 will be charged if a time to pay arrangement was made. OR the outstanding VAT was paid 31 days or more after the due date. The penalty is calculated as 2% of that which was outstanding between day 15 and Day 30.

Second Penalty will be charged until payment is made in full or a time to pay is made after 31 days. This is calculated at 4% per year for the outstanding balance and calculated at the time it is paid.  

Late Payment Interest

Late payment interest will be charged from the day the payment becomes overdue until the day it is paid off. The interest rate used is the Bank of England Base Rate plus 2.5%. The Late Payment Interest also applies to Late Submission Penalties and Late Payment Penalties if they are paid after 30 days.

There is a familiarisation period in place up to 31^st December 2023. The late payment penalty First Penalty part 1 will not be charged, so no late payment penalty until the VAT bill is more than 30 days overdue.

The details are different if you file VAT annually and monthly. For more information please contact me or visit the HMRC website.