Posted by jonathanfullarton - December 6, 2022 9:52 am Beware new VAT late submission and payment rules

From 1 January 2023, new VAT late submission and payment rules will come into effect. The old rules will be replaced for VAT periods starting on or after the 1 January 2023 – therefore the first businesses affected will be those submitting monthly returns and those with a quarterly stagger to 31 March 2023. Any VAT due on returns before this date, will continue to fall under the old rules.

What happens if you submit your VAT return late?

Late submission penalties will work on a points-based system. You will receive a late submission penalty point for every VAT Return you submit late. Once a penalty threshold is reached, see table below, you will receive a £200 penalty plus a further £200 penalty for every subsequent late submission until your points are reset.

To reset your points to zero you must:

• submit your returns on or before the due date for your “period of compliance” and;

• ensure that all outstanding returns due for the previous 24 months have been received by HMRC.

What happens if you submit your VAT return late?

Up to 15 days overdue

You will not be charged a penalty if you pay the VAT you owe in full or agree a payment plan on or between days 1 and 15.

Between 16 and 30 days overdue

You will receive a first penalty calculated at 2% on the VAT you owe at day 15 if you pay in full or agree a payment plan on or between days 16 and 30.

31 days or more overdue

You will receive a first penalty calculated at 2% on the VAT you owe at day 15 plus 2% on the VAT you owe at day 30. You will also receive a second penalty calculated at a daily rate of 4% per year for the duration of the outstanding balance. This is calculated when the outstanding balance is paid in full, or a payment plan is agreed.

Time to Pay arrangements

Agreeing Time to Pay (TTP) arrangements with HMRC, if agreed before the penalty deadlines, will mean that late payment penalties are not applied. However, if the TTP arrangement is subsequently broken, the late payment penalties will be applied. This is the case even if a single payment under the arrangement is late.

Period of familiarisation

HMRC has confirmed that during the first year of the new late penalties regime that there will be a period of familiarisation to allow taxpayers time to adjust. During the first year HMRC will not charge the first stage of the first penalty, 2% at day 15. This means that, provided you pay within 30 days of the due date, no late payment penalty will arise in the first year. Late payment interest will still apply though.

Interest rate changes for late payment

From 1 January 2023, the late-payment interest will change and will instead be charged from the day the payment is overdue until the date that the amount is paid in full. The interest rate will be the Bank of England’s base rate plus 2.5%.

Interest rate changes for late repayment

The repayment supplement will be withdrawn for accounting periods on or after 1 January 2023. It will be replaced, with repayment interest, which accrues from the day after the due date or submission date, whichever is later, until HMRC makes the full repayment. The rate for repayment interest will be set much lower at the Bank of England rate minus 1%, subject to a minimum rate of 0.5%.

In summary

This is probably going to be welcomed by most VAT registered businesses. There are some attractive features to the new rules, in particular that if you miss the payment deadline by a few days then you will not receive a penalty (only late payment interest will apply). However, there are some unpleasant elements, such as missing TTP arrangement payments, which will be quite costly if overlooked.

Please do not hesitate to contact your local MFW office if you would like to discuss the impact of these changes on your affairs