If you are a VAT registered business, ensure you file and pay your VAT return on time
The VAT default surcharge regime has been replaced by a new penalty system with distinct penalties for late submission of VAT returns and late payment of VAT. Effective for VAT return periods beginning on or after 1 January 2023. Interest on late payments to HMRC and to taxpayers will compute differently under the new method.
What was the old system?
Rather than having a separate late submission penalty. VAT now has a combined late submission and late payment penalty known as the Default Surcharge. A 12-month Surcharge Liability Notice (SLN) is sent after a taxpayer file their first late return. Moreover, Depending on the number of defaults and the company’s yearly sales. The SLN term can extend and penalties of up to 15% of the tax owed can impose.
What is the new system?
The new penalty point system for late VAT returns, which expect to implement across all taxes in due course, intende to be less harsh in cases where the taxpayer misses a rare deadline. HMRC will assign a taxpayer one point for each missed filing date, and your points for late returns will expire after the appropriate period has gone unless you exceed the penalty levels. Moreover, Points can now award late nil and repayment returns, which is a significant new improvement.
Late filing of VAT returns:
This section will use a points-based system, which means that even if there is nothing to declare, a penalty point will assign each time a business fails to submit its VAT return on time, and once the penalty points threshold is met (which is based on the frequency of a business’ VAT returns), penalties will assign. This will begin with a £200 penalty and increases by £200 for each consecutive late submission.
| Submission frequency | Penalty points threshold | Period of compliance |
| Annually | 2 | 24 months |
| Quarterly | 4 | 12 months |
| Monthly | 5 | 6 months |
Can you reset the points clock?
All points remove from the system after two years, and you can also have your penalty points reset to zero if the following requirements are met:
- Ensure that your subsequent VAT returns are submitted on or before the due date for your compliance period.
- Make sure that HMRC has received all VAT returns that were due in the last 24 months.
Late payment of VAT return liability:
Because default surcharges were also based on percentages, this will be more familiar. The updated mechanism, on the other hand, intends to be more equitable than its predecessor in that it encourages taxpayers to pay their VAT debt sooner by offering reduced penalty rates for making earlier payments. As a result, Some may recall that the current method applies a fixed percentage regardless of how close to the due date the VAT return payment make.
What factors use to determine the exact amount of the fine?
| Length of time overdue | Penalty |
| Up to 15 days | There will be no penalty if the VAT is paid in full by day 15 after the due date or a payment plan is agreed on or between days 1 to 15. |
| Between 16-30 days | A first penalty will be calculated at 2% on the VAT owing from day 16 until day 30 (after the due date for payment). |
| 31 days or more | Additionally, if there is still VAT owing after 30 days past the due date, a second penalty will then become payable and is calculated at a daily rate of 4% per year for the duration that the outstanding balance remains. |
Period of grace:
Moreover, to help businesses adjust to the new rules, HMRC will waive the first late payment penalty for the first year (1 January 2023 – 31 December 2023), as long as the VAT pay in full within 30 days of the payment due date.
Is there any Interest charged on the penalty?
Interest on overdue payment of VAT will continue to charge interest at a rate of 2.5% over the Bank of England base rate and will continue to accrue even in circumstances where a time-to-pay arrangement has been put in place.
Moreover, VAT surcharges and penalties imposed by HMRC may be successfully challenged.
A situation where surcharges can appeal:
Default Surcharges can appeal where there is a ‘reasonable excuse’ for the VAT return being sent in late or payment being made late.
Moreover, HMRC will not often accept a lack of funds as a valid reason for non-payment, but if it can demonstrate that unusual circumstances, such as fraud or delayed refunds from other taxes or HMRC, are the cause of non-payment, this can consider a valid excuse.
- Other examples of ‘reasonable excuse’ include:
- Issues with the HMRC online system
- Illness of key personnel in the business
- Loss of records
- Issues with hardware/software
- Fire or flood at the premises
- HMRC failed to action changes requested in good time due to Covid and other reasons (i.e. updating a VAT group)
Next Step:
Furthermore, If you are looking to know about the new VAT system, please feel free to Book a free consultation now.
