As all VAT returns must now be submitted digitally using software compatible with the Making Tax Digital (MTD) regime, the penalties that come alongside late filing and late payment have been revisited. Unless your business is exempt from MTD, familiarising yourself with the guidelines will be vital in avoiding costly penalties.
What Are The Latest VAT Penalties?
Having spent decades supporting businesses of all scales with their accounting needs, we recognise that any changes to the terms of VAT returns can be daunting. For this reason, we are committed to ensuring that our clients remain in the loop with the latest updates. Learn more about the most recent changes to late filing and late payments below:
New VAT Late Filing Penalties
For any periods starting on or after the 1st of January 2023, new penalties will be in place for late VAT returns. With every late submission, the HMRC computer will issue a late filing point, not a monetary penalty. If you collect several points, only then will you receive a flat penalty of £200.
What is the new penalty point threshold?
The number of points you can collect before being issued a monetary penalty will differ based on how often you file your VAT returns. The threshold is as follows:
- Quarterly returns = 4 points
- Monthly returns = 5 points
- Annual returns = 2 points
If you file quarterly VAT returns, you will be liable to pay the £200 penalty when you file your fourth late VAT return. For each subsequent late VAT return, a £200 late filing penalty will be triggered.
Can penalty points be wiped from your record?
Yes, but only when you have a period of perfect compliance will the slate be wiped clean. To reach perfect compliance, you will need to complete and file all outstanding VAT returns on time for 12 months. Those who submit annual or monthly returns will have different terms for perfect compliance.
How does this affect repayments or VAT owing?
With these new terms in mind, regardless of whether the VAT return shows as a repayment or VAT owing, late delivery will result in a point or penalty. There is no soft landing for the new system of late filing penalties.
Lastly, it is important to note that the old system of surcharges for VAT paid late does not feed into the new late-filing penalty system.
New VAT Late Payment Penalties
Much like the late filing of returns, the new penalties for late payments also apply to any VAT period beginning on or after the 1st of January 2023. You now have 15 days to pay your VAT or arrange a Time to Pay agreement; if you fail to meet this, you will be issued a penalty. As this is likely to take time to get used to, for 2023 only, this period will be extended to 30 days to allow you to familiarise yourself with the new system.
How are the penalties calculated?
From 2024 onwards, the penalties for late payment will be calculated as 2% of the unpaid VAT on day 15 and a further 2% on day 30. If payment still hasn’t been made after day 30, the first penalty will be 4% of the amount due. However, if the full payment is made between days 15 and 30, the first penalty will be set at 2%. From day 31, a second penalty is charged daily based on an annual rate of 4% of any outstanding VAT due.
What is the interest on late payment penalties?
In addition to the penalties for paying late, you will also be charged interest at the Bank of England base rate plus 2.5% (with current rates, this will make interest 6.5%). If you are due a VAT repayment, but HMRC does not pay this on time, you will receive repayment interest at the Bank of England base rate minus 1% (making it 3%).
These changes create a much fairer system than the old VAT default surcharges, which issued traders with as much as a 15% penalty for VAT paid only one day late. There will be no carry forward of default periods or surcharge levels from the old VAT penalty system into the new late-payment regime.
Do You Need Support With VAT Returns?
While the new regime does take a more relaxed approach to penalties, efficiently managing your VAT returns remains vital. If you have any questions regarding the latest updates or need support filing your VAT returns, our reputable team are always more than happy to help. Feel free to contact us today to book an appointment and begin your journey to modernising your accounting.