The way in which penalties and interest are applied for late payment and submission of VAT returns is changing from 1st January 2023, which will affect anyone submitting a VAT return for an accounting period that starts on or after this date.
The default surcharge is being scrapped, and will be replaced by these new penalties for those who fail to submit or pay their VAT on time. Further guidance is expected to be released from HMRC next month, but for now we’ve summarised the key points that are changing.
Working in a similar way to speeding fines, these penalties are based on ‘points’. You’ll receive a penalty point for each time you fail to submit your VAT return on time. If you reach your penalty threshold (the threshold varies depending on how frequent you’re required to submit a VAT return), you’ll be given a penalty of £200. Any further late submission will also result in another £200 penalty. You can find out more about these penalty points via the Government website.
If you don’t pay your VAT bill on time, the amount you’ll be penalised will depend on how overdue the payment is. Therefore, it’s extremely important to pay as soon as possible (or agree to a payment plan) to avoid higher penalties. The new late-payment penalties are as follows:
|How many days the payment is overdue||Penalty incurred|
|Up to 15 days||No penalty
(note: you WILL still be charged interest!)
|16–30 days||2% penalty of the VAT owed on day 15|
|31+ days||2% penalty of the VAT owed on day 15
& 2% penalty of the VAT owed on day 30
In addition, you’ll also be charged a daily rate of 4% per year for as long as your bill is outstanding
Although it’s best practice to ensure your VAT is always submitted and paid on time, HMRC is allowing a ‘period of familiarisation’ for the first year in order to give businesses time to adjust to these new rules. Up until the 31st December 2023, you won’t receive a late-payment penalty as long as you pay the full amount within 30 days.
In addition to the late-payment penalties, you’ll also be charged interest for any outstanding balance. The rate is set at the Bank of England base rate plus 2.5% and will begin from the day your balance is overdue, continuing until you’ve paid the outstanding balance off in full.
This is being replaced with a ‘repayment interest’ – which you’ll be paid for any owed VAT. The interest rate is set at the Bank of England base rate minus 1% (minimum rate of 0.5%) and will begin from either the day after the due date or submission date (the latest date out of the two will be used) and will continue until you receive the VAT repayment in full.
If you’d like further information or guidance on late payment and submission penalties, there are several useful resources you can take advantage of. The Government guidance paper outlines everything you’ll need to know, and HMRC has also provided an informative YouTube video too:
In addition, the ICAEW held a webinar about these new penalty rules earlier this month. You can catch up on the full recording here.
Not yet signed up for Making Tax Digital?
Using MTD-approved software is probably one of the easiest and best tools you can use to help you accurately and efficiently submit your returns online. Not only this, but it’s also now compulsory for VAT-registered businesses to use MTD software (with plans for this to be rolled out for Income Tax in 2024), so if you’re not yet compliant with these regulations, now’s the time to do so!
The team at Warr & Co are very knowledgeable about MTD and can help you get set up, choose the right software and ensure you’re fully compliant with regulations. We’ve also partnered up with several leading MTD-approved services, giving you access to free trials and discounted licences (limited number available), so please don’t hesitate to get in touch with our team to help you get started.