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The changes to VAT penalties from 1 January 2023 will affect everyone who submits VAT returns, including nil or repayment return. The default surcharge regime has been replaced by a new penalty system with different penalties for late submission of VAT returns and late payment of VAT. It’s also changing the way interest is calculated when taxpayers are late in paying HMRC.

The new points system

HMRC intend for this to be less punitive when the taxpayer misses the occasional deadline. It will allocate 1 point each time a filing deadline is missed, and that point will expire after a specified time unless you go over the penalty thresholds. When you reach a relevant number of points, a £200 penalty will be charged, and all subsequent missed deadlines will incur a penalty.

Points for penalties

A penalty will be charged when your total equals these thresholds:

Submission period Points threshold

Annual 2 points

Quarterly 4 points

Monthly 5 points

Expiration of penalty points

Like driving license ‘points’, your points will expire when you have met a longer test of compliance – submitting everything on time.

Late payment of VAT

The new points system will apply in two stages, fixed penalties and daily penalties. The later your payment, the higher the rate of penalty. Payments that are up to 15 days late will not trigger a penalty irrespective of the number of occurrences.

  • Payments between 16 and 30 days late – 2% penalty of amount outstanding at day 15
  • Payments that are 31 days late or more – 2% penalty of amount outstanding at day 15 plus additional 2% penalty calculated on the amount outstanding at day 31

There will also be a daily penalty from day 31 on the amount outstanding.

It is important to note that the penalties and interest charges can add up quickly, and can have a significant impact on a business's finances. Therefore, it is essential for small business owners to take their VAT obligations seriously and stay on top of their VAT returns and payments.

Need help?

If you need help or support with your VAT obligations, get in touch.

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