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New VAT Penalty System in the UK. What Changes?

From the beginning of 2023, the United Kingdom will introduce new penalties for late submission and late payments of VAT returns.

Currently, default surcharges are applied if the VAT deadline is missed, with VAT interest calculated on late payments.

The new penalties will also apply to NIL VAT returns for periods when no sales were completed or late repayment returns.

The novel penalties will be calculated on a points-based system, which means the more returns that have been missed, the more penalties are generated. The planned penalty threshold is £200. According to the UK’s tax authority, the HMRC, the taxpayer will receive one penalty point for each VAT return submitted after the deadline. This means that with points, the penalty is generated until the threshold is reached, and once the penalty is generated, each late submission is penalised by a further £200 penalty.

However, the penalty point the late submission penalty point threshold will depend on the submission frequency based on the assigned taxation period.

For example, annual returns will have a 2 points threshold in a 24-month period. 4 points threshold will be applied to quarterly submissions in 12 months and 5 points for monthly, the period of compliance being 6 months.

If a taxpayer pays ongoing VAT returns on time and ensures that HMRC has received all tax reports from the past 24 months, it is possible to annul the received points and avoid the penalty.

Another penalty system covers late VAT payments. The penalties for late payments will vary based on how soon the taxpayer is able to cover the liability after missing the payment deadline. In addition to the penalties, the HMRC will charge interest on overdue VAT payments. It is planned the interest will be calculated by adding 2.5% to the Bank of England’s base rate on the outstanding VAT until it is paid in full.

When it comes to penalties, the calculation will be slightly more complicated. For example, late payment from 16 to 30 days will mean 2% of the VAT owed on day 15 if the liability is paid in full or a payment plan is agreed upon. If the payment is late less than 15 days, no penalty will be applied, and if the delay is more than a month, the fines will increase.

The HMRC has already announced a grace period when it will not charge the first late payment penalty. The grace period will extend from the beginning to the end of 2023.

However, the good news is that the HMRC has also described a clause for repayment interest, which means that the tax authority will pay the taxpayer’s repayment interest on VAT owed. The minimum repayment interest will be 0.5%, and it will be calculated by subtracting 1% from the Bank of England base rate.

Do you want to learn how the changes could potentially impact your operations? Get in touch with Vatabout’s experts, and we will analyse your situation!

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