Look away now if you don’t like penalties

Fortunately, we will not revisit any historic penalty shoot outs, which may be a blessing depending on your allegiance.

After 40 years of dealing with the old default surcharge system, on 1 January 2023 a radical new penalty and interest regime has been introduced for late filing and late payment of VAT.  Instead of the cliff-edge effect of the old system, the new regime is based on a points system, where points most definitely don’t make prizes!

Late Payment 

  • VAT late payments will be charged interest from day one. The interest rate will be 2.5% above Bank of England base rate
  • No penalty charged if VAT has been paid by the end of day 15 after the due payment date.  2% penalty levied on tax outstanding at end of day 15
  • A further 2% penalty will be charged if any tax is still owed by close of play on day 30
  • From day 31, a daily penalty based on an annual rate of 4% will apply until the outstanding tax is paid
  • Make sure you pay your January and February 2023 returns on time as the old regime will still apply
  • As a first-year concession until 31 December 2023, a penalty will not be issued by HMRC if all tax owed on a return is fully paid within 30 days of the due payment date

Late Filing Penalty

  • This is a new penalty points system for late VAT returns, which is intended to be less punitive where a taxpayer misses the occasional deadline
  • 1 penalty point will be incurred each time a filing deadline is missed 
  • £200 penalty will be charged on racking up the following penalty points dependant on your filing requirements
    • Annual = 2 points
    • Quarterly = 4 points
    • Monthly = 5 points
  • Each point thereafter will incur a further £200
  • To reset the clock you have to meet a longer period of good compliance (ie submitting and paying everything on time) for a specified period
  • The good compliance period will depend on your return cycle as below
    • Annual = 24 months
    • Quarterly = 12 months
    • Monthly = 6 months 

Tips to avoid the dreaded penalty shoot-out

  • Direct debit: pay all VAT returns by direct debit
  • Time-to-pay agreements: No penalty will be applied once a time-to-pay agreement has been accepted by HMRC
  • Submit your returns on time: says it all really
  • Make part-payments: pay as much tax on time as possible

Please contact the Dafferns tax team to ensure you don’t lose in the new VAT penalty regime.