New VAT Penalties

HMRC Penalties for VAT – Late Payment & Late VAT Returns: How to Avoid Surcharges and Penalties and Interest

Are you submitting your VAT returns on time? From January 1, 2023, late VAT returns (including nil payment returns) will result in penalty points. Don’t risk a £200 fine – learn how the points system works and how to prevent penalties for a late submission. Starting on January 1, 2023, HMRC will make late submission charges to VAT returns for periods beginning on or after that date. This change replaces the previous HMRC late VAT default surcharge and late payments. How interest is charged will also change, affecting all VAT return submitters, including those submitting nil or repayment returns. The previous VAT penalty regime surcharge period ran for 12 months before the filing deadline. And this applies to unpaid VAT payments which HMRC did not receive before the due date. The VAT penalties that applied in 2022 and previously have now changed.

VAT Submission

How HMRC Late Submission Penalties Work for Late Filing and the new Surcharge and Penalties regime

It is essential as a VAT taxpayer to send your VAT return by the deadline for your accounting period. Your accounting period is when you need to send a return to HMRC (e.g., quarterly). Late submission penalties are based on a points system. You will receive a penalty point for every late VAT return you submit. Once you reach a certain number of penalty points (determined by your accounting period), you will be fined £200 for each subsequent late submission. And the fines increase by £200, so the next fine within 12 months would be £400. If you want to make sure you pay less than £400 in VAT penalties, you need to ensure your VAT returns are filed on time. If you receive a liability notice, you should respond to avoid penalties and interest. HMRC have more information here.

Penalty Point Thresholds by Accounting Period

The maximum number of penalty points you can receive is determined by your accounting period.

Accounting periodPenalty points threshold
Annually2
Quarterly4
Monthly5

Penalty Example for a Business Making Quarterly Returns

For a company that submits VAT returns quarterly (with a penalty point threshold of 4), the following scenario would result in penalties:

The company has already received three penalty points for submitting three previous returns late. The company submits their next return late and receives a fourth penalty point.

Because they have reached the penalty point threshold of 4, they are fined £200. The company then submits their next return on time. They remain at the threshold of 4 penalty points but do not receive any additional fines. The company then submits their next return late. Since they are still at the threshold of 4 penalty points, they are fined an additional £200.

VAT Penalties and Non-Standard Accounting Periods

Different rules apply if you have received an agreement from HMRC to use a non-standard accounting period.

Accounting periodPenalty points thresholdRules that apply
Over 20 weeks2Annual
Over 8 weeks and no more than 20 weeks4Quarterly
8 weeks or less5Monthly
New VAT Penalty Points regime

Effect of Business Changes on Penalty Points

Changing Your Accounting Period

If you have agreed with HMRC to change the frequency of your return submissions, your penalty points threshold will be adjusted. Here is how your penalty points threshold will be adjusted:

Previous accounting periodPrevious penalty point thresholdNew accounting periodNew penalty point threshold
Annual2Quarterly4
Annual2Monthly5
Quarterly4Annual2
Quarterly4Monthly5
Monthly5Annual2
Monthly5Quarterly4
VAT Penalties when changing accounting periods

If you have existing penalty points, this is how they will be adjusted:

Previous accounting periodNew accounting periodPenalty points adjustment
AnnualQuarterly+ 2 points
AnnualMonthly+ 3 points
QuarterlyAnnual– 2 points
QuarterlyMonthly+ 1 point
MonthlyAnnual– 3 points
MonthlyQuarterly-1 point

Note that if the adjustment results in a negative number of points, your points will be set to zero. Adjustments will not be made if you have zero points. You cannot appeal adjustments to your penalty points.

If you change from a non-standard accounting period to the equivalent standard period, your points will not change.

Non-standard accounting periodEquivalent standard accounting period
Over 20 weeksAnnual
Over 8 weeks and no more than 20 weeksQuarterly
8 weeks or lessMonthly
VAT penalty for non-standard accounting period
VAT penalties and interest. Unpaid VAT.

Taking over a Business

If you take over a VAT-registered business as a “going concern,” the penalty points accumulated by the business will not be transferred to your VAT registration number. This will be the case even if you use the same VAT registration number.

Ceasing to be VAT Registered

Any penalty points will be cancelled if you stop being VAT registered.

Appeals and Reviews

You may be able to appeal or ask for a review if you think the penalty is wrong or if you have a reasonable excuse for submitting your return late. If you have a reasonable excuse for submitting your return late, you should send your appeal or request for review to HMRC as soon as possible and no later than 30 days after the date of the penalty notice. If you do not have a reasonable excuse for submitting your return late, you should send your appeal or request for review to HMRC within 30 days of the date of the penalty notice. In either case, you should fully explain the circumstances and any supporting evidence.

Strategies To Meet The New VAT Payment Deadlines

January is a busy month for many businesses, as it’s when many businesses have to file their annual VAT returns. However, with the new VAT Penalties deadline fast approaching, it’s essential to be prepared. Below, we’ll outline some key strategies you can use to ensure that your returns are filed on time and in compliance with the new regulations.

First and foremost, ensure that your accounting systems are up to date. Many businesses struggle to meet the Vat Penalties deadline because their accounting systems are outdated. Updating your systems will automate many of the tasks in filing your tax return. This will save you time and hassle and ensure your return is filed promptly. We recommend Xero for MTD VAT submissions. Another critical area to focus on is identifying potential costs and areas of noncompliance. By scanning your business for any red flags or areas where tax may not be being paid correctly, you can ensure that all transactions are properly recorded and tracked for input tax purposes. This will help identify areas where corrective action may need to be taken.

Finally, it’s important to implement training for finance teams regarding these changes. Making sure that everyone in your organization is aware of the new deadlines can help avoid any problems

Conclusion

Submit your VAT returns on time to avoid VAT penalties for late returns. Late submission penalties are based on a points system, with higher thresholds for quarterly and monthly submitters. If you have a reasonable excuse for submitting your return late, you may be able to appeal or request a review. If you take over a VAT-registered business or cease to be VAT registered, your penalty points will be affected.

Don’t let late VAT returns result in costly penalties – stay on top of your accounting and submit your returns on time. If you need help managing your VAT or have questions about the penalty system, don’t hesitate to contact us. Our team of experts is ready to assist you and ensure that you stay compliant with all VAT regulations. Contact us today and let us help you avoid VAT penalties and keep your business running smoothly.