Changes to VAT Penalties
Posted on 4th November 2022
This Week's Friday Tax Tip
HMRC will be introducing and rolling out a new penalty and interest regime for the late filing and late payment of VAT.
From 1st January 2023 significant changes will be introduced including penalties being applied to repayment traders and nil returns.
The new regime will replace the existing rules for VAT periods starting on or after 1st January 2023.
For late filing, the new regime is point based. For each late return the taxpayer will receive a penalty point, once the points reach a certain threshold, a fixed penalty of £200 will be charged.
The threshold will depend on how often returns are filed,
Annual returns – 2 points
Quarterly returns – 4 points
Monthly returns – 5 points.
Therefore, a taxpayer who must submit quarterly VAT returns would have to file four returns late before they incurred a penalty.
Additionally, penalty points have a shelf life. Provided the penalty threshold has not been reached, a point will automatically expire after 24 months.
However, once a taxpayer hits the penalty threshold, individual points will no longer automatically expire, and each and every subsequent late filing will trigger a further £200 penalty.
At this stage, the only way points can be removed, and further penalties avoided, is through a period of compliance.
The new penalty regime is scheduled to be extended to income tax self assessment (ITSA) in 2024 for those in Making Tax Digital (MTD) and 2025 for those outside MTD.
For more information, please see link below to HMRC’s guidance:
The tax tip is provided for general guidance only; further advice should be sought, for specific issues.
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