If you submit VAT Returns or pay VAT in the UK, you need to be aware of upcoming changes to penalties and interest charges. These changes will apply to accounting periods starting on or after 1 January 2023.
What are VAT Returns and VAT?
VAT (Value Added Tax) is a tax on goods and services that is applied at each stage of the supply chain. Businesses registered for VAT must submit VAT Returns to HM Revenue and Customs (HMRC) to report the VAT they have charged and the VAT they have paid on purchases.
Who is affected by the changes?
The changes will affect anyone who submits VAT Returns for accounting periods starting on or after 1 January 2023. Late submission of nil or repayment VAT Returns will also be subject to penalty points and financial penalties.
Penalties for Late Submission of VAT Returns
Late submission penalties will be based on a points system. For each VAT Return you submit late, you will receive one late submission penalty point. Once a penalty threshold is reached, you will receive a £200 penalty and a further £200 penalty for each subsequent late submission. The threshold for penalty points varies depending on your submission frequency:
Annually: 2 points, 24-month period of compliance
Quarterly: 4 points, 12-month period of compliance
Monthly: 5 points, 6-month period of compliance
You can reset your points back to zero if you:
Submit your returns on or before the due date for your period of compliance
Ensure that all outstanding returns due for the previous 24 months have been received by HMRC
Penalties for Late Payment of VAT
For late payment penalties, the sooner you pay the lower the penalty rate will be. If you pay in full or agree to a payment plan within 15 days of the due date, you will not be charged a penalty. If you pay in full or agree to a payment plan between 16 and 30 days overdue, you will receive a first penalty calculated at 2% on the VAT you owe at day 15. If you are 31 days or more overdue, you will receive a first penalty calculated at 2% on the VAT you owe at day 15, plus an additional 2% on the VAT you owe at day 30. In addition, you will receive a second penalty calculated at a daily rate of 4% per year for the duration of the outstanding balance, which will be calculated when the balance is paid in full or a payment plan is agreed.
Period of Familiarization
To give you time to adjust to the changes, HMRC will not charge a first late payment penalty for the first year from 1 January 2023 to 31 December 2023 if you pay in full within 30 days of the payment due date.
Late Payment Interest
From 1 January 2023, HMRC will charge late payment interest from the day your payment is overdue until the day your payment is made in full. Late payment interest is calculated as the Bank of England base rate plus 2.5%.
The repayment supplement will be withdrawn from 1 January 2023. For accounting periods starting on or after 1 January 2023, HMRC will pay you repayment interest on any VAT that you are owed. This will be calculated from the day after the due date or the date of submission (whichever is later) until the day HMRC pays you the repayment VAT amount in full. Repayment interest will be calculated as the Bank of England base rate minus 1%. The minimum rate of repayment interest will always be 0.5%, even if the repayment interest calculation results in a lower percentage.
If your having trouble submitting your VAT or being MTD compliant give us a call and speak to one of our VAT experts who can help you get on top of your VAT returns.
Written by Irina Stucere