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New penalties for VAT

From 1 January 2023 HMRC replaced the old default surcharge with new penalties for submitting VAT return late or paying VAT liability late.

Which return will the new scheme affect?

The scheme came in force with the VAT returns starting on or after 1 January 2023.

Example: if your VAT period is ending in April, the return will start on 1 Feb 2023 which is after 1 January 2023, and January return won’t be in the new regime as it relates to the quarter started on 1 November 2022.

Who has to be aware of the new scheme?

All VAT registered businesses are subject to the new regime, which include the businesses who have only nil or repayment VAT returns, as unlike under current system they will incur penalties if the returns will be submitted late.

What happens if you submit the return late?

The new system is points based, which means that for each VAT return submitted late you will receive one late submission penalty point.

Once the threshold is reached you will receive £200 penalty and a further £200 penalty for each subsequent late submission. Points threshold will varied depends how often you submit your VAT return.

What happens if you pay VAT late?

For late payment penalties, the sooner you pay the lower the penalty rate will be.

  • Up to 15 days – There will be no penalty charged if you pay the VAT due in full or agree a payment plan on or between days 1 and 15.

  • 16-30 days – The first penalty is calculated at 2% of the VAT due at day 15, if you pay in full or agree a payment plan on or between days 16 and 30.

  • Over 31 days – The first penalty calculated at 2% on the VAT due at day 15 plus 2% on the VAT due at day 30.

You will receive a second penalty calculated at a daily rate of 4% per year for the duration of the outstanding balance. This is calculated when the outstanding balance is paid in full or a payment plan is agreed.

Period of familiarisation

To give you time to get used to the changes, we will not be charging a first late payment penalty for the first year from 1 January 2023 until 31 December 2023, if you pay in full within 30 days of your payment due date.

Withdrawal of the repayment supplement

As part of the changes, the VAT repayment supplement provisions will cease from 1 January 2023.

HMRC will instead pay repayment interest of the Bank of England base rate minus 1% (minimum of 0.5%) on any VAT due from HMRC.

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