New VAT Penalty System – what you need to know
Alison Horner · September 7th 2023 · read
There is a new penalty system from 1st January 2023. There are separate regimes for late submission of the VAT Return and late payment of VAT due.
The previous system was the VAT default surcharge with the penalty calculated on the VAT due once a return was submitted. It was a very unpopular system and being a day late could cost a small fortune with little chance of overturning the penalty.
So what does this mean for taxpayers:
New regime for late payment penalties
Late filing regime
This is now live and we are seeing penalty notices and fines being issued. It can add up and for those businesses who are in a continuous VAT refund position and have not worried about this before, it can come as a shock.
- Businesses must submit the VAT return by the deadline of the VAT accounting period.
- It’s a Points-based system – receive a penalty point per late filing, until the penalty point threshold is reached when an automatic penalty of £200 is charged for each late filing thereafter.
- If you submit quarterly returns and are late 4 times you will be in the system and will need to submit 4 returns on time to exit the system.
Late payment regime
HMRC are allowing a period of transition and penalties won’t be charged until 31st December 2023 if the taxpayer pays within 30 days or arranges “time to pay”.
The table below shows how expensive it could get.
|1st Late payment penalty||2nd Late payment penalty|
|Payment up to 15 days overdue||None||None|
|16-30 days overdue||2% of VAT owed on day 15||None|
|31+ days overdue||• 2% of VAT owed on day 15 |
• Additional 2% of what is owed on day 30
|• Daily rate of 4% per year on outstanding balance |
• Charged everyday from day 31 until everything is paid
We hear you asking – what about me, when do HMRC pay me for being late?
If HMRC is late in paying the taxpayer, they may be entitled to interest after 1st Jan 2023.
The repayment interest rate is Bank of England base rate minus 1% - minimum rate of 0.5%.
We have seen examples of clients receiving random small amounts of ££ from HMRC with no notification. So if you have this happen it may be down to a VAT refund being paid late to you.
This is quite a considerable change as before under the Repayment Supplement regime, HMRC compensated the taxpayer when they were 30+ days late. This was much more generous at 5% of the VAT owed. This has now been withdrawn.