The way HM Revenue & Customs charge VAT penalties is changing. Even if you file nil returns or get repayments from HMRC you may still fall foul of the new regime, which starts on 1 January 2023.
It is important to remember that the return filing deadline and payment due dates have not changed and remain 1 calendar month from the period end date, plus 7 days more if filed electronically.
The new VAT penalty regime works in the same way as points accumulate on your driving licence when you commit a driving offense; for each infraction incurred you get a point against your VAT record. Once you reach a certain points threshold the penalties start.
The threshold depends on how often you submit returns; 4 points for quarterly and 5 points for monthly returns. Once you reach the threshold HMRC will fine you £200 for each late return until you have submitted enough returns on time within a 12- or 6-month period respectively. Once this happens the points are cleared off your record.
Furthermore, if you pay your VAT late you will be charged 2% of the outstanding amount if 15 days late, a further 2% if 30 days late after which 4% per annum is charged daily after that. In addition, HMRC will charge interest daily at a rate of 2.5% above the Bank of England base rate.
As you can tell, if you partially pay your VAT on time, the late payment penalty reduces, so it is advantageous to pay as much as you can up front. Also, if you arrange a payment plan BEFORE any of the above penalties are charged, then there will be no fine.
You can arrange a payment plan either online (click here) – or call HMRC directly.
It is important to remember that any VAT returns received late, irrespective of whether they report a payment, nil payment, or a repayment, will be subject to late filing penalties going forward. To avoid all of this we recommend that you ensure your VAT returns are going in on time and that you budget your cash flow in order to pay the VAT liability when it falls due.
As this is a quick overview of the new VAT penalty regime and if you would like any further advice on either the penalties, cashflow planning or any other assistance then please contact us on the number below and we will be pleased to assist.
Paul Warren is a member of the Business Services Team with A C Mole. He can be contacted on 01823 624450 or PWarren@acmole.co.uk
