For VAT accounting periods starting on or after 1 January 2023, the way HMRC applies penalties for late VAT returns is changing.
Under the new system, you will face penalty points if you submit your VAT return late.
Late payment penalties apply to any payments of VAT not paid in full by the relevant due date, this includes nil VAT and repayment returns as well.
You’ll get a first late payment penalty if your payment is 16-31 days overdue. If your payment is 31 days or more overdue, you will receive a larger first late payment penalty, plus a second late payment penalty on top of that so it is imperative to make any payments as quickly as possible.
How does the new point system work?
Late VAT submission penalties work on a points-based system, so for each return you submit late you will receive a penalty point. If you receive enough points, you will reach a penalty point threshold.
Once you’ve reached your penalty point threshold, you’ll automatically receive a £200 penalty, and a further £200 late VAT payment penalty for each subsequent late submission while you remain at the threshold.
The threshold is set by your accounting period:
- Annual accounting period threshold = 2 penalty points
- Quarterly accounting period threshold = 4 penalty points
- Monthly accounting period threshold = 5 penalty points
There are some circumstances where the late submission penalty rules do not apply. These include:
- Your first VAT return if you’re newly VAT registered
- Your final VAT return after you cancel your VAT registration
- Any one-off returns that cover a period other than a month, quarter or year
For example, you might make a one-off return covering a four-month period because you changed from submitting quarterly to annually.
Removing penalty points
If you’ve not reached the threshold for penalty points for your accounting period, individual points will expire automatically. When penalty points expire depends on the date your return was due, but it normally takes around 24 months.
If you’ve reached the threshold for late submission penalty points, you’ll need to remove them to avoid further £200 penalties. You can only remove them by meeting both of these conditions:
- Complete a period of compliance, submitting all returns by the deadline.
- Submit all outstanding returns for the previous 24 months.
If you cannot pay your VAT liabilities, it is advisable to file your VAT return on time and contact HMRC to negotiate a time-to-pay agreement. If an instalment payment plan is agreed and put in place, the standard interest charges on late payments are frozen from that day and will not be enforced if you stick to the payment plan.
For any further information on the new late VAT payment penalty system, click
here.
If you have any questions, please contact your local Moore Advisor.