Client Newsletter

What are the penalties for the late filing and payment of VAT information?

From 1 January 2023, HMRC will introduce a new point-based MTD penalty system, which will replace the existing late submission penalty regime.

Under this new system, for each submission deadline that is missed, you will accrue a single point.

Once you receive a certain number of points for late submission, you will receive a fine.

This more progressive approach to penalties will vary depending on how frequently you are required to submit.

For example:

  • For annual submissions, accruing two points will result in a penalty.
  • In the case of quarterly reports, such as MTD for ITSA, four points will result in a penalty
  • If you are required to make more regular monthly submissions, five penalty points will result in a fine.

The standard fine for each of these submission penalty thresholds is an automatic £200 penalty. However, every single late submission after this initial fine will result in an additional penalty being added.

Although points are accrued over time, they will also expire after two years when a taxpayer demonstrates ongoing compliance with the rules. The two years are counted from the month after you received the point. However, points will not expire when the penalty threshold is reached.

Although you won’t face automatic fines for late submissions under this system the potential for a larger overall fine for extended or regular periods of non-compliance is greater.

Under the new late filing penalties system, a nil return or refund return will still incur penalty points and the automatic penalty.

What about late payments?

Under this new system, you will not receive a penalty if you pay the VAT you owe in full or agree on a payment plan on or between days one and 15.

If payment continues to be due from day 16 to day 30 you will receive a first penalty calculated at two per cent on the VAT you owe.

Finally, if your VAT payment is 31 days or more overdue, then you will receive a second penalty calculated at a daily rate of four per cent per year for the duration of the outstanding balance.

These penalties are calculated when the outstanding balance is paid in full or a payment plan is agreed upon.

Be prepared

HM Revenue & Customs (HMRC) will not be charging a first late payment penalty for the first year from 1 January 2023 until 31 December 2023. However, it will be charging the second penalty for payments that are 31 days late or more.

These changes could have a significant impact on VAT penalties and so you should make sure you are compliant with current requirements and keep up to date with your VAT records and payments.

If you have any concerns or need help with VAT compliance, please speak to us.