Penalties for submitting VAT returns late and paying VAT late are changing, with new rules coming into effect on 1st January 2023
If there’s one resolution to make – and keep – this New Year, it’s to stay on top of your VAT returns and payments because failing to do either could get more costly from 1st January as HMRC changes its procedures.
Late submission penalties will now work on a points-based system. For each VAT return submitted late, businesses will receive one late submission penalty point.
Once a penalty threshold is reached, businesses will receive a £200 penalty and a further £200 penalty for each subsequent late submission. The late submission penalty points threshold will vary according to the submission frequency.
Firms will be able to reset their points back to zero if they submit their returns on or before the due date for the period of compliance — this will be based on submission frequency – and if they make sure all outstanding returns due for the previous 24 months have been received by HMRC.
For late payment penalties, the sooner it is paid the lower the penalty rate will be.
Up to 15 days overdue: Businesses will not be charged a penalty if the VAT owed is paid in full or a payment plan is agreed to on or between days 1 and 15.
Between 16 and 30 days overdue: A first penalty will be issued calculated at 2% on the VAT owed at day 15 if paid in full or if a payment plan is agreed to on or between days 16 and 30.
31 days or more overdue: A first penalty will be issued calculated at 2% on the VAT owed at day 15 plus 2% on the VAT owed at day 30.
A second penalty will be issued 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.
To give businesses time to get used to the changes, HMRC will not be charging a first late payment penalty for the first year from 1st January 2023 until 31st December 2023, if VAT is paid in full within 30 days of the payment due date.
Also changing from 1st January 2023 is the way in which VAT interest is calculated. HMRC will charge late payment interest from the day a payment is overdue to the day a payment is made in full. Late payment interest is calculated as the Bank of England base rate plus 2.5%.
One final change is the withdrawal of the repayment supplement. For accounting periods starting on or after 1st January 2023, HMRC will pay repayment interest on any VAT a business is owed.
This will be calculated from the day after the due date or the date of submission (whichever is later) and until the day HMRC pays the repayment VAT amount due 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 you cannot pay your tax bill, contact HMRC as soon as possible as it may be able to arrange more time to pay or for you to pay in instalments.
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