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Points make… penalties: VAT changes from 1 January

/ 23 January 2023

Simon Levine

At this time of year, attention is focussed on the importance of filing self-assessment tax returns and paying tax by 31 January and on the consequences (in terms of automatic penalties) of failing to do so.

However, 1 January 2023 also sees fundamental changes to the VAT penalty regime.

For accounting periods starting on or after that date, failure to submit a VAT return by the due date (usually a month and seven days after the end of the return period) will earn you a ‘penalty point’.  Accumulate enough penalty points in, broadly, any two-year period and your reward is a penalty of £200.  ‘Enough penalty points’ means four points if you file quarterly, two if annually and five if monthly. Once the penalty threshold has been reached, each subsequent failure also produces its own £200 penalty unless you can demonstrate a ‘reasonable excuse’.

You leave the penalty regime and start afresh with a ‘clean licence’ only once you’ve established an unbroken succession of timely returns – four if you file quarterly, two if annually and six if monthly.

Quite separately, penalties may be charged for late payment of VAT.  There is no similar ‘totting up’: in principle a penalty is potentially charged on each and every late payment.

  • Payment up to 15 days late attracts no penalty (though interest will be due).
  • Payment between 16 and 30 days late attracts a penalty of 2% of the VAT owed at day 15.
  • If payment is later than that, there is an additional penalty of 2% of the amount unpaid at day 30 plus ‘penalty interest’ (in addition to the normal late payment interest) at 4% per annum from day 31 until payment.

Again, a ‘reasonable excuse’ will avoid the penalty (good luck with that!) and as a special introductory offer to ‘give you time to get used to the changes’ HMRC will, for the whole of 2023, not charge penalties provided payment is made (or a ‘Time to Pay’ arrangement made) within 30 days of the payment due date.

Late payment penalties do not, however, apply to VAT payments on account; nor to instalments payable under the VAT Annual Accounting Scheme.

For more details – including special rules when you change return periods or succeed to a business, and for treatment of first, last and one-off returns – please get in touch with your usual BKL contact or use our enquiry form.

Simon Levine

Senior Adviser, VAT

T +44 (0)20 8922 9146
E simon.levine@bkl.co.uk

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