HM Revenue and Customs (HMRC) has issued a reminder to VAT-registered businesses regarding the new penalties and interest payments that will come into effect. These changes aim to create a fairer system for businesses that submit their VAT returns or make payments late, with the first affected returns due by 7 March 2023.
Key Takeaways
New penalties for late VAT submissions and payments are now in effect.
A points-based system will replace the previous VAT default surcharge.
Businesses can set up payment plans to manage their VAT bills.
Overview of New Penalties
The new penalties, which were introduced on 1 January 2023, replace the VAT default surcharge and apply to accounting periods starting after this date. The changes include:
Late Submission Penalties: A points-based system will be implemented. For each late VAT return, businesses will receive a penalty point until they reach a threshold, at which point a £200 penalty will be applied. An additional £200 penalty will be charged for each subsequent late submission while at the threshold.
Late Payment Penalties: If a VAT payment is more than 15 days overdue, businesses will incur a first late payment penalty. If the payment is more than 30 days overdue, the penalty increases, and a second late payment penalty will also apply. To ease the transition, HMRC will not charge a first late payment penalty on VAT payments due on or before 31 December 2023, provided businesses either pay in full or agree to a payment plan within 30 days of the due date.
Payment Plans and Support
HMRC is committed to supporting businesses that may struggle to pay their VAT bills in full. Businesses can set up payment plans to pay their VAT in instalments. Key points regarding payment plans include:
Proposing a payment plan within 15 days of the payment due date can prevent late payment penalties, provided the conditions of the plan are met.
Late payment penalties may apply if proposals are made after the first 15 days, but agreeing to a plan can prevent penalties from increasing.
Changes to Interest Calculations
In addition to the new penalties, HMRC has revised how interest is calculated for late payments and repayments. The new regime aligns VAT interest rules with those of other taxes:
Late Payment Interest: Charged from the day after the VAT payment is due until it is paid in full, calculated at the Bank of England base rate plus 2.5%.
Repayment Interest: Paid by HMRC if there is a delay in repaying VAT, calculated at the Bank of England base rate minus 1%, with a minimum rate of 0.5%.
Important Deadlines
Businesses should be aware of the deadlines for submitting VAT returns and making payments. The deadline for submitting VAT returns online is typically one calendar month and 7 days after the end of an accounting period. For example, for the quarterly accounting period ending on 31 March 2023, the deadline for submission and payment is 7 May 2023.
Conclusion
As businesses adapt to these changes, HMRC is reaching out to 2.5 million VAT-registered businesses to ensure they understand the new system. It is crucial for businesses to stay informed and compliant to avoid unnecessary penalties and interest payments. Additionally, businesses are advised to remain vigilant against scams and protect their HMRC login details to prevent fraudulent activities.
Sources
GOV.UK, GOV.UK.
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