New UK VAT penalty regime – Practical Points
A new penalty regime for VAT comes into effect for VAT return periods starting on or after 1 January 2023. The new system is designed to penalise persistent offenders rather than those who make occasional mistakes
What is changing?
The old default surcharge regime is being replaced with both a late payment and a late submission penalty system. The late payment penalty applies to VAT not paid by the end of day 15 after the payment due date. In addition, late payment interest will be charged on all tax paid late at a rate of 2.5% above the Bank of England base rate. A new points-based penalty system will apply to VAT returns submitted late. For full details of the changes see our earlier blog articles (here and here) and the recently issued HMRC guidance.
Key points to note
There are some practical points that businesses should take into consideration regarding these changes:
- There will be no conversion of the old default surcharge system to the new points system for traders currently in a default surcharge liability notice period as a result of a prior late VAT return submission.
- The new late submission penalty points system will apply to all VAT returns, i.e. repayment and nil returns as well as payment returns. If a business does not have the data it needs to submit a return on time it would make sense to submit a nil return by the due date and correct it later to avoid incurring a penalty point. Similarly, businesses should submit a return on time even if they are unable to pay the VAT owed by the due date.
- As a first-year concession a late payment penalty will not be issued by HMRC if all tax owed on a VAT return is paid in full within 30 days of the payment due date.
- Businesses will be able to appeal a penalty on the grounds of having a “reasonable excuse”.
- If a time to pay arrangement is agreed with HMRC the late payment penalty clock stops. However late payment interest will still be charged.
- HMRC will have discretionary powers to reduce or not charge a penalty for late payment if it considers it appropriate.
- More detailed HMRC guidance is due to be published in December 2022/January 2023.
Businesses should familiarise themselves with the penalty changes to avoid getting caught out by some of the finer detail.