By Becky O’Flynn, MTD Manager at White Hart Associates
HM Revenue & Customs have published guidance on the introduction of the new penalty regime which will be effective from January 2023. The changes were deferred from April 2022 to grant HM Revenue & Customs more time to make the necessary system changes.
Essentially, these adjustments will replace the existing default surcharge system with a two-tiered approach; points-based penalties for late submissions and interest charges. Please note that this new penalty programme applies to VAT periods starting on — or after — 1 January 2023. Therefore, if your year end is encompassed by the change implementation date, the default surcharge will be replaced by the new penalty structure, and becomes applicable if you submit VAT Returns late, or if payment of your VAT liability is overdue.
What are the announced changes?
The changes will impact everyone submitting VAT Returns for accounting periods starting on or after 1 January 2023.
Historically, penalties had not been charged if you made a late submission of a Nil VAT Return or a Return that resulted in your business being in a VAT repayment position with HM Revenue & Customs. However, from January 2023 these types of Returns will also be subject to late submission penalty points and financial penalties under the new system.
What happens if you submit a VAT Return to HM Revenue & Customs late?
Late submission penalties will work on a new points-based system.
For each VAT Return you submit late, you will receive one late submission penalty point.
When a penalty threshold is reached, you will automatically receive a £200 penalty and a further £200 penalty for each subsequent late submission. This is regardless if the Return is subject to a liability or a refund; or indeed is a Nil Return.
The late submission penalty points threshold will vary according to how frequently you submit VAT Returns to HM Revenue & Customs.
Below is a table showing the penalty points threshold:
Submission Frequency Penalty Points Threshold Period of Compliance
Annually 2 24-months
Quarterly 4 12-months
Monthly 5 6-months
How long will the penalty points remain on your account?
You will be able to reset your points back to zero, if the following two criteria are met:
- Submit your VAT Returns on or before the due date for your period of compliance — this will be based on your submission frequency.
- Make sure all outstanding VAT Returns due for the previous 24-months have been received by HM Revenue & Customs.
What happens if you do not pay your VAT liability on time?
For late payment penalties the rule is… the sooner you pay, the lower the penalty rate you will face paying.
Up to 15 days overdue:
- You will not be charged a penalty if you pay the VAT liability you owe in full — or agree a payment plan — on or between days 1 and 15.
Between 16 and 30 days overdue:
- You will receive a first penalty calculated at 2% on the VAT liability you owe at day 15 if you pay in full — or agree a payment plan — on or between days 16 and 30.
31 days or more overdue:
- You will receive a first penalty calculated at 2% on the VAT liability you owe at day 15, plus 2% on the VAT liability you owe 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 grace
To help businesses become accustomed to the newly imposed penalty system, HM Revenue & Customs will not be charging a first late payment penalty for the first year (covering specific date period 1 January 2023 to 31 December 2023 — please note, this reprieve is only applicable if you pay in full within 30 days of your payment due date.
How late payment interest will be charged?
From 1 January 2023, HM Revenue & Customs will charge late payment interest from the day your payment is overdue to the day your payment is made in full.
Late payment interest is calculated at the Bank of England base rate plus 2.5%.
Introduction of repayment interest
The repayment supplement (which was a form of compensation previously offered) is withdrawn effective from 1 January 2023.
For accounting periods starting on or after 1 January 2023, HM Revenue & Customs will pay you repayment interest on any VAT liability that you are owed.
This will be calculated from the day after the due date or the date of submission (whichever is later), and until the day HM Revenue & Customs pays you the repayment VAT liability amount due to you in full.
Repayment interest will be calculated at 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 would like to discuss this topic further or require assistance in this area, please contact our team here.
White Hart Associates are specialist accountants for the travel industry. Visit whitehartassociates.com or contact 0208 878 8383 for more information.