HMRC introduces changes to VAT penalty system from January 2023

Industry News - 7th December 2022

HMRC is changing the way it charges penalties and interest on late VAT submissions and payments.  These changes will apply to all VAT registered businesses for accounting periods starting on or after 1 January 2023.
 
Following closely behind the introduction of Making Tax Digital (MTD) and the requirement for VAT registered businesses to submit VAT returns using MTD compliant software, HMRC has announced that it is making changes to its VAT penalty system.
 
The current default surcharge system will be replaced with separate penalties for late VAT returns and late VAT payment. In addition, the way that VAT interest is calculated will also change.
 
Late VAT submission penalty changes
 
HMRC claims that the new points-based penalty system will be more lenient for those who occasionally file late returns but will still penalise those who regularly file after the due date.  For each VAT return filed late, one late submission point will be received.  Once a penalty threshold is reached, a £200 penalty will apply. This also applies if you submit a nil or repayment return late.
 
Late payment penalty changes
 
Late payment penalties will be charged at different rates, depending on when the payment is received.  The longer the payment is outstanding, the higher the penalty to pay.
 
Introduction of late payment interest
 
Interest will now be charged from the date your payment is overdue, until the date your payment is made in full.  This will be charged at the Bank of England’s base rate plus 2.5%.   
 
Time to get used to changes
 
To give businesses a chance to familiarise themselves with the changes, HMRC will not charge a first late payment penalty for the first year from 1 January 2023 to 31 December 2023, if payment is made in full within 30 days of the payment due date.
 
Removal of repayment supplement and introduction of repayment interest
 
HMRC is also removing repayment supplement and replacing it with repayment interest. Any repayment claims will be paid repayment interest on any VAT that you are owed, from the day after the due date, or the date of submission (whichever is later), to the date repayment is made to you by HMRC.
 
Please get in touch if you have any questions on how these changes may affect you.
 
More information available at gov.uk

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