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Get ready for the new VAT penalty regime coming in next year


VAT penalties are changing for VAT return periods beginning on or after 1 April 2022.


The existing regime levies a Default Surcharge, which imposes surcharges of up to 15% of the VAT due. The percentage depends on the number of defaults and the turnover of the VAT registered entity. Currently no surcharges or penalties are levied where a repayment is due. It is important to note that this will not be the case from April 2022. In line with direct taxes, penalties will be imposed even where the trader is due a repayment.


The new system will introduce late submission penalties using a points-based system which will penalise those who frequently file late the most.


Points will be levied each time a return is late and, once the points threshold is reached, HMRC will levy a penalty of £200 each and every time a return is late whilst the taxpayer remains over the points threshold.


The points threshold is dependent on the taxpayer’s submission frequency. For annual submissions the threshold is 2 points, quarterly is 4 points and monthly is 5 points.


Once the points threshold has been reached, the taxpayer needs to then ensure all returns are on time as they will expire after a period of time when the taxpayer has met all of their filing obligations. For annual returns the period is two years, quarterly returns one year and for monthly returns the time period is six months.

Late payment penalties are also being brought in which are made up of two parts.


The first will be levied based on the outstanding balance. If payment is made within 15 days of the due date, no penalty will be due. If the tax is paid between 16 and 30 days from the due date the penalty will be 2% which rises to 4% for tax still unpaid after day 30.


The second penalty is an annualised penalty of 4% on the overdue tax which will accrue on a daily basis from day 31 after the due date.


Penalties can be avoided if a ‘time to pay’ arrangement is agreed with HMRC in good time.


Further reading can be found on GOV.UK or please contact us for more information.

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