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Change to VAT penalties from January 2023


For VAT periods starting on or after 1 January 2023, the current default surcharge system is being replaced by a new penalty system for both submitting VAT return late and making a late payment. Interest levied on late payments is calculated is also changing.

A key point to note is that even repayment VAT returns filed late will also be penalised.


What will happen if I am late filing my VAT return?

Sending in VAT returns late will mean you will get penalties which will be worked on a points-based system., with each late return attracting one penalty point.

If you reach a certain threshold, which is based on how often you file returns (please refer to the table below), you will incur a £200 penalty. A further £200 penalty will then be levied for each subsequent late submission.



In order to reset your penalty point status back to zero you will need to:

  • submit your returns on or before the due date throughout the period of compliance (as above based on how often you file returns)

  • Ensure all returns for the past 24 months have been filed with HMRC

So what will happen if I pay my VAT late?

Penalties

These penalties are scaled in such a way that the sooner you pay the tax, the lower the penalty rate will be.



HMRC’s ‘soft landing’ period is to be applied to allow taxpayers time to adjust. For the first year, if taxpayers pay in full within 30 days of their payment due date, they will not be charged a first late payment penalty.

Interest

In addition to the penalties outlined above, from 1 January 2023, HMRC will also charge taxpayers late payment interest from when the payment becomes overdue to the day they receive payment. The rate will be the Bank of England base rate plus 2.5%.

What if HMRC owe me VAT back?

Interest in being introduced for VAT period periods starting on or after 1 January 2023, meaning HMRC will pay repayment interest on any VAT that you are owed. This rate will be calculated as the Bank of England base rate minus 1% with a minimum rate of 0.5%.

Further details will be published by December 2022.

If you are on top of your VAT returns, please speak to us about getting you up to date ready for the change. Please speak to our director, Heather Langtree, on 01756 799823 or any of our VAT team, who will be able to help you.

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