Starting January 1, 2023, VAT penalty changes impact all return filers, regardless of amount. The new system has distinct penalties for late filing and late payment, and interest calculation has also been adjusted.
The new points system
HMRC intend for this to be less punitive when the taxpayer misses the occasional deadline. It will allocate 1 point each time a filing deadline is missed, and that point will expire after a specified time unless you go over the penalty thresholds. When you reach a relevant number of points, a £200 penalty will be charged, and all subsequent missed deadlines will incur a penalty.
Points for penalties
A penalty will be charged when your total equals these thresholds:
Submission period Points threshold
Annual 2 points
Quarterly 4 points
Monthly 5 points
Expiration of penalty points
Like driving license ‘points’, your points will expire when you have met a longer test of compliance – submitting everything on time.
Late payment of VAT
The new points system will apply in two stages, fixed penalties and daily penalties. The later your payment, the higher the rate of penalty. Payments that are up to 15 days late will not trigger a penalty irrespective of the number of occurrences.
- Payments between 16 and 30 days late – 2% penalty of amount outstanding at day 15
- Payments that are 31 days late or more – 2% penalty of amount outstanding at day 15 plus additional 2% penalty calculated on the amount outstanding at day 31
There will also be a daily penalty from day 31 on the amount outstanding.
It is important to note that the penalties and interest charges can add up quickly, and can have a significant impact on a business’s finances. Therefore, it is essential for small business owners to take their VAT obligations seriously and stay on top of their VAT returns and payments.
Need help?
If you need help or support with your VAT obligations, get in touch.