In the ever-changing landscape of financial regulations, businesses must stay informed and adapt to the latest updates. One such change that has impacted VAT accounting is the replacement of the VAT default surcharge with a new VAT penalty and interest regime. As of 1st January 2023, this has reshaped how penalties are calculated for late filing and late payment of VAT. In this blog post, we will dive into the details of this new regime and explore what it means for businesses.
Late Filing Penalties
Under the new penalty regime, a points-based system determines the penalties for late submission of VAT returns. Each late return, regardless of whether it is a nil or repayment return, accrues one late submission penalty point. Once a certain threshold is reached, a penalty will be charged, with the trigger depending on the frequency of return submissions. Here’s a breakdown of the penalty point thresholds according to submission frequency:
- Annually: 2 penalty points (within a 24 months compliance period)
- Quarterly: 4 penalty points (within a 12 months compliance period)
- Monthly: 5 penalty points (within a 6 months compliance period)
When the penalty threshold is reached, a charge of £200 will be imposed. Subsequent late submissions will incur additional penalties of £200 each.
Resetting Penalty Points
To encourage timely compliance, the points total can be reset to zero if all returns are submitted on or before the due date for the compliance period, and all returns due for the previous 24 months have been submitted to HMRC.
Late Payment Penalties
Late payment penalties may be charged if VAT owed to HMRC is paid after the due date. The amount of the penalty varies based on the number of days the payment is late. Here’s a breakdown of the late payment penalties:
- Within 15 days of the due date: No penalty
- 16 to 30 days after the due date: Penalty equal to 2% of the VAT owing at day 15
- 31 days or more after the due date: Penalty equal to 2% of the VAT owing at day 15 plus 2% of the VAT owing at day 31
In cases where a time to pay agreement is reached, penalties are calculated based on the date the arrangement is made.
Clearing the Balance
A further penalty will be charged when the VAT balance is cleared or a time to pay arrangement is agreed. This penalty is calculated at a daily rate of 4% per year for the duration of the debt.
First-Year Relief
To provide businesses with time to adjust to these new rules, HMRC won’t charge late payment penalties during the calendar year, 1st January 2023 to 31st December 2023, if the payment is made in full within 30 days of the due date.
Late Payment Interest
As of 1st January 2023, late payment interest will be charged on overdue VAT from the due date until the date payment is made in full. The rate of late payment interest will be equal to the Bank of England base rate plus 2.5%.
Repayment Interest
Effective from 1st January 2023, HMRC pays repayment interest on VAT that they owe, replacing the repayment supplement. The interest period will run from the due date (or the date the VAT was submitted if later) to the date payment is made in full by HMRC. Repayment interest will be paid at a rate equal to the Bank of England base rate minus 1%, with a minimum rate of 0.5%.
As the new VAT penalty and interest regime comes into effect, businesses must familiarise themselves with the changes to avoid unnecessary penalties and interest charges. By staying informed and ensuring timely compliance, businesses can navigate these changes with confidence. Remember, it’s crucial to adapt and embrace these new regulations to maintain a smooth VAT accounting process.
Here To Help
If any of these changes affect your business, we are happy to talk you through what you need to do to stay on top of your tax. Feel free to get in touch,
You can call us on 01257 241 111
Or email us at info@studholme-bell.com
