HMRC: Upcoming Changes To VAT Penalties And Interest Charges

If you submit your VAT return late, a Default Surcharge would normally be applied to your account, but did you know that HMRC is changing the penalty regime for late submissions and payments?

Change is coming. The new VAT penalty regime will be introduced on the 1st of January 2023 as it was delayed from April 2022. This will bring VAt more closely in alignment with other penalties for tax returns.

"This delay will give HMRC more time to make the changes to their systems!"

There is currently no standalone late submission penalty for VAT even though a Default Surcharge applies, which actually combines both late submission and late payment sanctions.

For a first late return, a Surcharge Liability Notice is issued. For subsequent defaults, the SLN period extends and penalties of up to 15% are levied, based on the number of defaults.

Under the proposed changes there will now be a two-tier penalty; a late submission penalty of £200 per late return and then a points-based late submission system based on how often you submit VAT returns. The system heavily penalises serial late filers and is more lenient to others.

Points will reset to ensure you submit all returns on time for a set period, but it gets a little confusing when you have a points tally for other returns. For example, if you also have to provide an annual ITSA return as well as quarterly VAT returns they will have separate points tallies.

"But if both are late, both point totals go up by one, as well as one for the group of quarterly returns!"

And the sooner the VAT is paid following a late return, the more lenient HMRC will be with other related penalties and interest, though Time to Pay arrangements can still be made to stop the penalties from accruing.

Interest will be charged at 2% of outstanding tax if the tax due remains unpaid 15 days after its due date. If it is still unpaid after 30 days, this increases to 4% of the tax still outstanding at that point.

HMRC is giving businesses time to familiarise themselves with the new regime that is due on the 1st of January 2023, but as always, I recommend filing your returns on time and paying when it's due.

You'll save yourself a massive headache.

If you feel inspired to find out more about anything I've said here, do call me on 01908 774320 or leave a comment below and I'll be in touch as soon as I can.