As per updates from HM Revenue and Customs, starting January 2023, the current VAT returns and payments system will be replaced by a point-based system.
The new MTD system includes VAT penalties for late submission and late payment of VAT liabilities.
HMRC is expected to release further guidance next month. Stay informed with us about the changes.
Late Filing of VAT Submission
The new penalty point system for late VAT returns is designed to be more lenient for taxpayers who occasionally miss a deadline.
Under this system, HMRC will assign a single point each time a VAT return filing deadline violation. Similar to a driving licence, these points for late returns will expire after two years unless you reach the penalty threshold.
You need to pay a penalty of £200 once you have accumulated the necessary number of points, as outlined in the table below.
Additionally, any missed filing deadlines will also incur a penalty.
Annual VAT Return Submissions: 2 Points
Quarterly Submissions: 4 Points
Monthly Submissions:5 Points
VAT Late Payment Penalties
The new penalty system for late payments will be implemented in two phases: initial fixed penalties and additional daily penalties. As payment deadlines are missed, the penalty rate will increase.
Payments made within 15 days of the specified deadline will not incur any penalties.
You will pay a 2% penalty on the unpaid amounts as of day 15 for payments made between 16 and 30 days past the deadline.
Payments made after 31 days or more after the deadline will face a 4% penalty on the unpaid amounts.
Additionally, from day 31, a daily penalty of 4% per year will be imposed on the remaining unpaid amount.
Resetting your Penalty Points Table
The penalty points earned do not automatically disappear after penalty payment.
To reset the clock, you must meet more stringent compliance requirements (such as timely submission of all required documents) for a specified period and submit any preceding returns.
The length of the compliance period will be based on your return cycle.
Interest Rates
Interest on overdue taxes will continue to accrue based on the Bank of England base rate plus 2.5%, starting from the due date. This rate applies even in cases where a time-to-pay agreement has been established with HMRC.
On the other hand, if a business has overpaid its taxes, interest on the repaid amount will be calculated using the Bank of England base rate minus 1%.
How to Avoid VAT Penalties?
We recommend you adopt an MTD-compliant software solution for any business looking to streamline its tax submission process.
Not only is it an efficient way to submit returns online, but it’s also mandatory for VAT-registered businesses to use MTD software now.
Stay ahead of the curve and ensure compliance with regulations using our expert MTD knowledge. Don’t hesitate to contact us and access to free trials and discounted licences from leading MTD-approved providers.
