VAT penalties – New rules

The VAT default surcharge is being changed with a brand new VAT penalty and curiosity regime.

The brand new guidelines apply to VAT accounting durations starting on or after 1 January 2023.

Late submitting penalties

The brand new penalty regime operates on a points-based system. Every VAT return obtained late, together with nil and compensation returns, will obtain one late submission penalty level.

A penalty can be charged when the factors attain a sure threshold.

The penalty set off is dependent upon the frequency with which returns are submitted.

Submission frequency: Yearly

Penalty factors threshold: 2

Interval of compliance: 24 months

Submission frequency: Quarterly

Penalty factors threshold: 4

Interval of compliance: 12 months

Submission frequency: Month-to-month

Penalty factors threshold: 5

Interval of compliance: 6 months

As soon as the penalty threshold is reached, a penalty of £200 is charged.

Additional penalties of £200 are charged for every subsequent late submission.

The factors complete might be reset to zero if all returns are submitted on or earlier than the due date for the interval of compliance and all returns due for the earlier 24 months have been submitted to HMRC.

Late cost penalties

A penalty can also be charged if VAT owed to HMRC is paid late.

The penalty is dependent upon how late the cost is made.

No penalty is charged if cost is made inside 15 days of the due date. If cost is made between 16 and 30 days after the due date, a penalty equal to 2% of the VAT owing at day 15 is charged.

The place cost is made 31 days or extra after the due date, the penalty charged is the same as 2% of the VAT owing at day 15 plus 2% of the VAT owing at day 31. The place a time to pay settlement is agreed, penalties are calculated by reference to the date on which the association is made.

An additional penalty is charged when the stability is cleared or a time to pay association agreed. That is calculated at a each day price of 4% a yr throughout the debt.

To permit merchants time to turn into accustomed to the brand new guidelines, late cost penalties won’t be charged in the course of the first yr (1 January 2023 to 31 December 2023) the place cost is made in full inside 30 days of the due date.

Late cost curiosity

From 1 January 2023, late cost curiosity can be charged on late paid VAT from the due date till the date cost is made in full. Late cost curiosity is charged at a price equal to the Financial institution of England financial institution base price plus 2.5%.

Reimbursement curiosity

The compensation complement is withdrawn from 1 January 2023. As an alternative, for accounting durations starting on or after 1 January 2023, HMRC can pay compensation curiosity on VAT that they owe. The curiosity interval will run from the due date (or date the VAT was submitted if that is later) to the date that cost is made in full by HMRC.

Reimbursement curiosity is paid at a price equal to the Financial institution of England base price minus 1%, topic to a minimal price of 0.5%.