MHA | New VAT Penalty Regime from January 2023

New VAT Penalty Regime from January 2023

Naomi Quant · January 25th 2023 · read

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For VAT periods that start after 31 December 2022, the Default Surcharge regime is replaced with new penalty scheme with separate charges for late filing and payments.

Previously either a late payment or a late submission would trigger a Surcharge Liability Period of 12 months had started. Penalties based on the amount of VAT outstanding on the due date would be imposed for every late payment or submission within the Surcharge Period and a business had to be fully compliant for 12 months before the Surcharge Period would be cleared.

With effect for accounting periods that start from 1 January 2023, two new penalties are to be introduced – one for late payments and another for late submissions. Interest charges will also apply to late payments in addition to the penalties.

Late Payment Penalties

Late payment penalties are imposed where a VAT liability is not paid in full by the end of 15 days after the due date and are based on the amount outstanding:

Penalties can be avoided if a Time to Pay arrangement is entered into swiftly or if there is a “reasonable excuse” for non-payment.

Past Due Date Penalty
1- 15 Days 0
16 -30 Days 2%
31+ Days 4%
31+ Days  4% p.a. accruing daily

In addition to the penalties above, interest is charged from the first day that the payment is late and runs until the payment is made in full. The current rate of interest applicable (as at January 2023) is 6% p.a.

Late Filing Penalties

As a direct replacement to the Surcharge Notice period, there will be a points based system. One point will be applied for each late submission.  This will include the late submission of nil or repayment returns that previously did not give rise to a penalty as there was no VAT to pay.

A maximum threshold is set depending on the frequency of the returns as shown in the table below. Once the maximum threshold is reached there is an immediate £200 penalty. Whilst at the maximum a further £200 will be charged for each additional late submission.

Points applied will expire after 24 months in the maximum is not reached in that time. Once the maximum is reached the business must be fully compliant with filing VAT returns on time for a set period depending on the frequency of the returns (listed below). Once a business has been compliant for the set time then all points will expire.

Frequency of returns Maximum points threshold Expiry period
Annual  2 24 months
Quarterly 4 12 months
Monthly  5 6 months

The decision to apply a penalty point will be notified in writing and can be appealed if there is a reasonable excuse for the late submission.

Existing Surcharge Periods

For those already in a Surcharge Notice Period the good news is that the slate is wiped clean and points will accrue only from periods starting after 1 January 2023.

Get in touch 

If you have any concerns regarding the new penalty regime or are facing a VAT penalty and would like to discuss it, then please contact a member of our Indirect team via our online enquiry form

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