Changes To VAT Penalty Regime Delayed Until 2023

The government has announced plans to delay the introduction of penalties for late submission of VAT returns which was due to come into effect from the 1st of April 2022. This has now been delayed by nine months until January 2023 ...

Lucy Frazer MP, secretary to the Treasury said, "In the Finance Act 2021, the government legislated to reform penalties for late submission and late payment of tax, initially from the 1st of April 2022, and to align interest charges for VAT with other major taxes. 'Today, I am announcing that these changes for VAT businesses will now be introduced nine months later, on the 1st of January 2023."

"HMRC is still committed to becoming the most digitally advanced tax authority in the world!"

They say that the ambition and pace of change need to be balanced with well-tested systems and good customer service, particularly when businesses are facing additional challenges and uncertainty.

This extra time will allow HMRC to ensure the IT changes necessary for the new penalties and interest charges can be introduced as effectively as possible, ensuring a high standard of service to customers.

"Under the proposed changes, there will be a two-tier penalty system!"

Firstly there will be a late submission penalty where HMRC will issue a single penalty point for late submission of a VAT return and, once the business has exceeded a points threshold for multiple missed returns, a flat penalty of £200 will be imposed for each late return.

The penalty thresholds will be as follows:

- Annual - 2 points
- Quarterly - 4 points
- Monthly - 5 points

Points will have a lifetime of two years after which they will expire.

Taxpayers will have one point total for each submission obligation they have. For example, if a taxpayer is required to provide an annual ITSA return and quarterly VAT returns, they will have separate points totals for ITSA and VAT. If both returns are late, a point will be applied to the points total to which the return relates.

"There will also be late payment penalties which are a two-part penalty!"

The first charge is 2% of the outstanding tax if the tax due on a return remains unpaid after 15 days. If it is still unpaid after 30 days, the penalty increases to 4% of the tax still outstanding. The second charge is daily (4% per year on the outstanding amount) from 31 days after the due date until the business pays what is due.

Late payment interest (2.5% above the Bank of England base rate) will be payable on tax outstanding after the due date for a VAT return. Where a payment is made after the due date, late payment interest will be payable from the due date until the date full payment of that tax is received by HMRC.

The time limit for HMRC to assess a financial penalty will be two years after the failure which gave rise to the penalty.

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